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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Harrison & Anor v Bloom Camillin a firm) [1999] EWHC 831 (Ch) (28 October 1999)
URL: http://www.bailii.org/ew/cases/EWHC/Ch/1999/831.html
Cite as: [2001] PNLR 195, [2000] Lloyds Rep PN 89, [1999] EWHC 831 (Ch)
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CHANCERY DIVISION
Strand, London, WC2A 2LL |
||
B e f o r e :
____________________
| (1) PETER MICHAEL HARRISON (2) JOHN STEWART HARRISON |
Claimants |
|
| -and- |
||
| BLOOM CAMILLIN (a firm) |
Respondent |
____________________
Miss Angharad Start (instructed by Messrs. Reynolds Porter Chamberlain) appeared on behalf of the respondent.
____________________
Crown Copyright ©
- THE FACTS
- THE NOTIONAL TRIAL DATE
- APPLICABLE PRINCIPLES
- WOULD THE CLAIMANTS HAVE PROCEEDED
- THE CLAIMANTS' PROSPECTS OF ESTABLISHING DUTY
- ESTABLISHING BREACH OF DUTY
- RELIANCE
The claimants would not have succeeded against Touche Ross in the action if they had established that the Report was negligent and/or either or both the assurances were given and were negligent, unless they also established that they reasonably relied on the Report and/or assurances as the case may be. Miss Start contends on behalf of the defendants that, in light of the evidence and arguments before me, the claimants would not have established such reliance or, in the alternative, that there is a real prospect that the claimants would not have established such reliance. If the latter alternative is correct, then the "chance" lost by the claimants as a result of the defendants' admitted negligence has to be further reduced in value.
I propose to deal with the issue of reliance by first concentrating on the arguments relating to the claimants' reliance on the Report, and then turning to the further arguments relating to the claimants' reliance on the alleged assurances.
Reliance on the Report
Miss Start raises a number of points which, she said, at the lowest cast doubts upon the claimants' prospects of establishing that they relied on the Report when deciding to proceed with the acquisition, and, at best from the defendants' point of view, suggest that the claimants would have had no real prospects of establishing such reliance.
First, she relies on the evidence as showing that the claimants had no wish to continue as managers of garden centres owned by their father, and were keen, almost desperate, to start up a new business venture of their own. Secondly, she argues that the evidence establishes that their father was anxious to get out of the garden centre business, and that their respective jobs at Codicote and Woking were under threat anyway. In connection with this latter point, it is right to mention that Mr Burgess's internal CIN reports in August and September 1986 overstate the extent to which the proposed sales of the garden centres had got underway. Nonetheless, I accept that the evidence shows that the claimants were clearly keen to stop working for their father and to start their own business, and that they appreciated that their father was anxious to sell the garden centres, although there is nothing to suggest that he urgently wished to do so.
Miss Start's third point is rather different in nature: she relies on the October indemnity, which the claimants had given to Mr Geminder initially on 7th October 1986, and which was extended on 30th October, 1986. The effect of the October indemnity, it will be recalled, was that, if the claimants (whether on their own or together with other parties) did not acquire the Admiral shares by a specified date, then the claimants would indemnify Mr Geminder against all his costs in connection with the transaction. Miss Start argues that this effectively forced the claimants into going ahead with the transaction, because they simply could not have afforded to honour that indemnity without proceeding.
Fourthly, Miss Start relies on the evidence of the claimants to the effect that they considered that the Report was "bland" and that, viewed as a whole, their evidence shows that they did not really rely on the Report to any significant extent. In particular, she points out that neither of the claimants could recall discussing the important Section F with Mr McIsaac, that Peter did not consider that the Report dealt with anything other than mere accountancy issues, and that, in the Novel, Peter recalled that the claimants were deeply concerned about the Report's lack of verification. She also contends that the Report was in fact quite bland and non-committal, and that, particularly read with the Touche Ross letter, it could not have been reasonably relied on. She also points to the attitude of the many banks who, after seeing the Report, refused to lend money or (in the case of BOS) only agreed to lend money on the basis that the purchase price for the Admiral shares was substantially reduced.
I do not find any of these points compelling. So far as the first two points are concerned, the fact that the claimants were anxious to go ahead with the purchase of the business, if at all possible, is clearly correct, but it does not appear to me that this aspect gives any significant support to the contention that they did not rely on the Report. First, although the claimants may have been optimistic and enthusiastic to the extent of arguably bordering on the naive at times, neither of them struck me as stupid, they each had experience of professional accountancy (and, indeed, John was a qualified chartered accountant); further, they each had had previous business experience. I consider that they were interested in Touche Ross's views, investigations, and ultimate opinions as contained in the Report, not merely because they hoped that the contents would be positive, but because they intended to take note of what was in the Report and to be guided by it. Of course, most potential purchasers who commission a report on a business they are proposing to acquire, hope that the report will be favourable, and they may well look at the report through somewhat rose-tinted spectacles: I do not consider that the claimants' attitude to the Report in the present case would have gone any further than that. Furthermore, I do not think it is irrelevant to bear on mind in this issue that it was CIN, as much as the claimants, who commissioned the Report, and that CIN (an experienced venture capital investor with a very good reputation) was prepared to go ahead with the transaction only after, and effectively as a result of, seeing the Report, and being satisfied that it was sufficiently full and satisfactory to justify CIN investing substantial money in the acquisition. Indeed, if CIN had decided not to go ahead, in light of the Report, the claimants could not have gone ahead, with the acquisition.
Miss Start's third point, namely the existence of the October indemnity, does not impress me. I am satisfied on the evidence that the claimants would have persuaded the court hearing the action that they did indeed have a conversation on 14th November 1986 with Mr Geminder as a result of which he agreed to release them from the October indemnity. It is true that Mr Geminder denied that this happened, and, given that he was not called to give evidence, it would clearly be open to me to conclude that there is a real chance that the court hearing the action would have decided that no such agreement was reached. However, I am satisfied that such an agreement was reached: there is not only the claimants' evidence to that effect, but also the fact that it has consistently been their case, and indeed although he was not called to give evidence, their then-solicitor, Mr Sparks of Durrants wrote to Mr Geminder's solicitors saying that the release had been given in his presence. It is of course conceivable that there was no release in the sense that there had been a misunderstanding between the claimants and Mr Geminder, as a result of which the claimants honestly believed that there had been a release, whereas one had not been given. As Mr Salter says, if that was what happened, then the important point for the purpose of the present argument is that the claimants would not have completed the transaction in the belief that they were at risk on the October indemnity, because, from 14th November 1986, they believed that they had been released from it.
As to the somewhat pejorative description of the Report as "bland", and similar criticisms of the Report, by the claimants in evidence, I do not think that they take matters much further. In the first place, criticisms of a report more than twelve years after it was first and most crucially considered, and in circumstances where the person criticising believes that it was negligently prepared and has caused him substantial loss and misery, are not, in my judgment, particularly reliable guides as to what the witness really thought of the report at the time that he received it and had to consider it. Secondly, the fact that (if it be one) that the claimants regarded the Report as "bland" when they first read it does not mean that they would not have relied on it. Thirdly, as I have already said when discussing whether or not the Report would have been held to be negligent, its terms were "bland" in the sense that the overall message conveyed by the Report was that Touche Ross did not think it appropriate to draw attention to any particular glaring defects. Fourthly, the description "bland" is not, in my judgment, inaccurate so far as the Report is concerned, although I accept that this is a somewhat subjective assessment. The further point that the claimants did not remember specifically discussing something with Mr McIsaac more than twelve years ago is, in my judgment, scarcely surprising and of little assistance.
As to the attitude of the Banks, the extent to which the decision not to lend was governed by the terms of the Report or the draft Report, as opposed to other factors (e.g. the relative inexperience of the claimants in the particular business) is unclear. As I have already indicated, if one was looking to reactions of third parties as relevant, it seems to me far more significant that CIN was prepared to invest a substantial sum of money in the acquisition following receipt of the Report.
In all these circumstances, I have come to the conclusion that it would be wrong to apply any further discount to take into account the fact that the claimants might have failed to establish that they relied and reasonably relied on the Report.
Reliance on the Assurances
As to the contention that the claimants should not reasonably have relied on the assurances, Miss Start points out with some force that, in each case, the alleged assurance was general in nature, made orally at an informal meeting in a public house, and in circumstances where the person making it knew, or at least reasonably believed, that the claimants were being advised commercially by another advisor, namely Mr Smith of Capital Consultants. She also relies on the fact that first assurance was made prior to the circulation of the draft report, and must therefore have been seen as being something of an interim observation. As to the second assurance, Miss Start rightly says that Mr Morris had been on holiday for the whole of the preceding two weeks during which the Report had been finalised. Further, the assurances were not even discussed with Mr McIsaac, who was the partner responsible for the Report, and with whom the claimants had had a more detailed and formal discussion following receipt of the Report, earlier the same day as the second assurance was allegedly given.
So far as the argument that the claimants did not in fact rely upon the assurances (if made) over and above the Report, Miss Start makes various points, most of which I have already considered in relation to the contention that the claimants would not have established that they relied on the Report. However, it does seem to me that there are additional points upon which she relies to support her contention that the claimants would not have established that they relied on the assurances. In this connection, when asked in cross-examination what his reaction would have been if, rather than giving the assurance, Mr Morris had said that he had nothing to add to what was in the Report, John said that it was "difficult to place [him]self back then" that the claimants had "a certain level of comfort already" and that he "wanted confirmation [that Mr] Morris, was comfortable with the final Report". Miss Start relies on other assurances of the claimants in evidence to support her contention that the assurances, even if made, would not have been relied on, but they were along the same lines as this slightly equivocal evidence.
Miss Start also contends that it is tolerably clear from the evidence of the claimants, and in particular John, that the claimants would have gone ahead with the acquisition, albeit perhaps at a lower price, even if the "deal breakers" which the claimants say should have been identified by Mr Morris had been communicated by him to the claimants. Confining myself to the "deal breakers" which constitute the arguable negligence in the Report, I do not consider this to be a good point. It is true that, during examination by Mr Salter, John suggested that each of the "deal breakers" could have been accommodated by an appropriate reduction in the price to be paid for the Admiral shares, but, when the evidence is read as a whole and in context, it seems to me that John's evidence on this point was directed to each "deal breaker" on its own, and he was not saying that all "deal breakers", taken together, could have been satisfactorily accommodated in this way. Miss Start suggests that, having got an unsatisfactory answer from the claimants' point of view from John on this aspect, Mr Salter "endeavoured to retrieve" the situation, but I do not think that is fair. John's statement upon which Miss Start relies was in answer to a question from Mr Salter which specifically began with the words "I want to deal with them [sc. the deal breakers] first of all individually and then collectively". His subsequent question began with the words "if you take them [sc. the deal breakers] all together ..."; while John's answer was, to be fair to the defendants, not unequivocally to the effect that the transaction would not have gone ahead, he made it clear that, if the claimants' attention had been specifically drawn to the "deal breakers", the whole transaction would have had to have been reconsidered.
Miss Start's other argument on this point is that the claimants were really only interested in good will, that is the trade marks owned by the Admiral Group, and not in its tangible asset position, and therefore the sort of defect in the Report which the claimants would have had a reasonable chance of establishing (as being the same as "deal breakers") would not have caused them any real concern. I do not consider that point to have significant force. The value of a trade mark, like any intellectual property, can be expressed in terms of potential income or in terms of capital value, but the one is, at least normally, a reflection of the other. Although the claimants (and indeed CIN) were obviously interested in improving the income which could be enjoyed from the trade marks, the extent to which the trade marks had been successfully exploited in the past was obviously important: it was reflected in the capital value of the trade marks. The value of the tangible assets were obviously significant in terms of value for securing borrowing at the very least. Further, large holes in, or question marks over, the alleged value of those assets in AISG would have cast doubt on the reliability of the other figures and other information provided to the claimants and CIN. It would certainly have given Touche Ross food for thought as well. In my judgment, this aspect was important to the claimants (and also to CIN). Indeed, the terms of the instructions letter demonstrate this, as does common sense.
Further, the claimants, and indeed CIN, were not merely acquiring the good will or the trade marks; they were acquiring other assets, as the documentary and oral evidence makes clear. The essential feature, for the purposes of the claimants' case against Touche Ross on this aspect, was embodied in Mr Taylor's evidence. He made the point that, at least on his view, the position which should have been revealed by the Report would have demonstrated that the Admiral Group's position was such as to be inadequate to justify anything like the outlay which the acquisition of the Admiral shares involved from CIN and the claimants. I do not accept Miss Start's contention that Mr Taylor was restricting his evidence in this connection to the perception of CIN alone; it seems to me that he was also concerned, as one would have expected, with the viewpoint of the claimants. It is true that Mr Taylor did not consider the possibility of a further reduction in price as a way of dealing with the "deal breakers", but there is nothing to suggest that that is the course which the claimants and CIN would have adopted if the Report had revealed that which it ought to have revealed, at least on the claimants' case as it would have been formulated against Touche Ross. Furthermore, there is nothing to suggest that Mr Geminder would have accepted a substantially lower price than that which was ultimately negotiated, although I accept that it is a possibility.
In these circumstances, I have come to the conclusion that a further discount should be applied in relation to the claimants' prospects of being able to establish a claim in negligence against Touche Ross on the basis of the assurances. As already indicated, I consider that their prospects of establishing that the assurances were given were less than evens, and a further discount must, in my judgment, be applied to take into account the arguments which Miss Start raises to support her contention that the claimants should not reasonably have relied on the assurances. However, I do not consider that any discount is appropriate to take into account the contention that the claimants may not have established that they did rely on the assurances: if the claimants had established that the assurances were given, then I do not think that they would have had any significant further difficulty in establishing actual reliance, although, as I have said, they would have faced an additional difficulty so far as showing that such reliance was reasonable.
- CONTRIBUTORY NEGLIGENCE
In their Defence, the defendants' case on contributory negligence was that:
1. Touche Ross emphasised that the Report was not to be regarded as "equivalent to an accountant's report for prospectus purposes but rather it being a review of the financial accounts to confirm or otherwise the consistent application of acceptable accounting principles" and that "none of the information stated in this report is verified by us";
2. The claimants knew or ought to have known that Touche Ross had only been permitted limited access to the Admiral Group's records and business;
3. Mr McIsaac had advised the claimants that he did not trust Mr Geminder;
4. The contents of the Report were not such that they could have reasonably been construed as recommending the Admiral Group as an investment.
In my judgment, these allegations are as much, indeed arguably more, relevant to the issue of Touche Ross' negligence than they are to any question of the claimants' contributory negligence. I note that they were all factors which were, to my mind rightly, taken into account by either or both of the experts when considering the question of Touche Ross's negligence. They can only be said to assist the defendants' case on contributory negligence to the extent that, whether together or separately, they constituted some sort of warning to the claimants not to proceed.
In her closing submissions, Miss Start raised a number of points which in many cases were fairly described by Mr Salter as new allegations of contributory negligence. Examples are the contentions that the claimants had failed to read the Report and/or to heed the "warnings" in the Report and/or to raise their concerns with Touche Ross and/or failed to observe that Touche Ross had not dealt with all the points in the Instruction letter. I am not satisfied that the defendants should be allowed to raise at least some of the new allegations contained in Miss Start's closing speech, but, in the event, I do not think that that is a point of great substance given my conclusions. In summary form, Miss Start contends that the claimants were "lax in their approach to the transaction".
Ultimately, I am not impressed by the defendants' argument on contributory negligence. One point which Mr Salter correctly emphasises is that the claimants could not have been contributorily negligent unless CIN was as well; indeed, given CIN's experience and expertise, it would seem to me that there was a powerful argument for saying that, if the claimants were contributorily negligent to a degree, then that would have been true of CIN to a greater degree. As Mr Israelsohn said, CIN had (and I assume still have) a very good reputation in the venture capital field, and while both experience and common sense demonstrate that a person with an excellent reputation can nonetheless be negligent, it does seem to me to be a point of some weight that, if the claimants were negligent, so was CIN. Mr Burgess, the person at CIN largely responsible for deciding to go ahead with the acquisition, gave evidence, and, apart from the fact that he struck me as competent (which I accept does not really take matters any further) it was never suggested to him that CIN had been negligent, although it is fair to say that there was no obligation on Miss Start to put such a suggestion to him. It is also interesting to note that he said that he would have expected to be told orally by Touche Ross if they had considered that there were any good reason not to proceed with the acquisition of the Admiral shares or that the position of the Admiral Group had been significantly mis-stated, and this did not take place.
In my judgment, when considering this question of contributory negligence, it is not irrelevant to bear in mind that Mr Taylor and, albeit to a lesser extent, Mr Israelsohn, clearly believed that the Report was not particularly well worded or presented (a view which can be said to be supported by the promise recorded in Mr Potter's memorandum of 15th September 1986which, it will be recalled, was not followed by Mr Brookes). I think Mr Taylor was right when he said that a fair amount of work would have to be carried out by the "critical reader" to achieve the sort of understanding of the Report which most of Miss Start's allegations of contributory negligence would have involved. An unattractive feature of Miss Start's submission in this connection, as I see it, is that one of the main allegations of negligence (which, on the assumption under which I am currently proceeding should be treated as established) was that Touche Ross had failed clearly to spell out a number of conclusions: while I accept that it is perfectly possible for the claimants to have been held to have been contributorily negligent in failing to draw those conclusions themselves, I think Touche Ross would have faced a significantly uphill task in persuading the court that it would be appropriate to find contributory negligence against the claimants in this connection.
Quite apart from this, Touche Ross had enclosed the Instruction letter with the Report: it would not be unreasonable for a recipient of the Report to assume that Touche Ross had dealt with their instructions to the best of their belief and that, if they had been unable to do so, that they would have said so. Indeed, the fact that Touche Ross do say so in one or two respects in the Report rather underlines the point. That Touche Ross were not regarded by CIN or the claimants (or by the expert witnesses) as having the limited role of purveyor of information also appears to me to be of relevance in this connection.
Miss Start's contention that the claimants had paid insufficient attention to section F of the Report, because it had not been included in the draft Report, upon which they had concentrated, while it may have a small amount of force so far as the facts are concerned, overlooks two points. First, there were defects in section F to which I have referred in the sixth section of this judgment. Secondly, the adding of section F to the draft Report did not cause any changes to be made in the substance, or even to any significant extent the wording, of the earlier sections of the Report over the draft Report. Thus, as Mr Salter says, section F, concerned with future projections, is based on the then-present facts and underlying assumptions, which it was for Touche Ross to review, and that review in the Report was, at any rate on the assumption on which I am proceeding in this section, negligent.
As to Miss Start's point that the claimants relied unreasonably on Mr Geminder, it appears to me that that is a little strong: Touche Ross had been instructed to provide the Report, and they thought it appropriate to rely upon what Mr Geminder said without (at any rate on the present hypothesis) checking as carefully as they should have done, and without sufficiently or clearly warning CIN or the claimants as to the risks inherent in that exercise or even suggesting that they were concerned about the position.
Miss Start also suggests that it was negligent of the claimants (and, therefore, presumably of CIN) to have accepted warranties from Mr Geminder rather than to have insisted on a retention. It seems to me that, while one can see the benefits of a retention over warranties (the former involves money remaining with the claimants, whereas the latter involves the claimants having to seek the money from Mr Geminder) I am wholly unpersuaded that the commercial decision to take the latter course could be characterised as negligent: no evidence was called to suggest otherwise.
While I do not consider that the defendants have made out a good case for contributory negligence against the claimants, the more difficult question I have to consider is whether the defendants have put up enough of a case for contributory negligence to justify my reducing the damages which the claimants should recover. In that connection, my conclusion is that it would be inappropriate to make any deduction in this connection. It appears to me that the material available in these proceedings relevant to the question of whether or not the claimants were contributorily negligent is not very much less than the material which would have been available to the court in the action, and that, on the basis of the evidence from the arguments, the contention that the claimants were contributorily negligent seems to me to be pretty weak. In those circumstances, which contrasts pretty markedly with the position with regard to the claimants' prospects of establishing negligence against Touche Ross in the action (where there is considerably less documentary and oral evidence available to me than would have been available to the trial judge, and where the arguments were rather more finely balanced), I consider that it is right to reach a clear conclusion on this issue, and accordingly not to make a further discount in that connection.
- DAMAGES (INCLUDING CAUSATION)
I shall approach the question of damages by considering the principles upon which damages would have been awarded in the action, and then turn to the various heads of damages which the claimants say they would have recovered in the action. It should be emphasised that, in this section of the judgment, any possible discounts which have so far been discussed are disregarded.
Principles
Although the decision of the House of Lords in South Australia Asset Management Corporation and York Montague Ltd [1997] AC 191 ("SAAMCo") may not have been given by the time the action would have come on for hearing, Mr Salter and Miss Start were, as I understood it, initially in agreement that the proper approach to adopt in these proceedings was to assume that any award of damages in the action would have been accordance with the principles laid down in that case, and indeed in the subsequent decision of the House of Lords in NyekRedit plc -v- Edward Erdman [1997] 1 WLR 1627. In his closing submissions, Mr Salter appeared to me to be a little less committed to that agreement, but in my judgment it is correct. First, in SAAMCo, the House of Lords authoritatively laid down that the law in a way which was not intended to be a departure from the past. If, therefore, damages in the action should have been assessed in accordance with the principles laid down in SAAMCo, it seems to me appropriate that I should proceed on that basis here. Secondly, although SAAMCo may not have been decided by the time the action came on for hearing, it is perfectly possible that, particularly if damages had not been assessed in accordance with the correct principles, one or other party would have appealed, and it appears clear that, by the time of the hearing of any appeal, SAAMCo would have been decided by the House of Lords.
In order to decide what damages would have been recoverable by the claimants in the action, it is therefore necessary to decide whether a particular head of damage was suffered as a result of the Touche Ross' negligence, and, if so, whether the particular loss (or some part of it) would have fallen within the scope of Touche Ross's duty of care. In agreement of Bell J in an unreported case, Yorkshire Enterprise Ltd -v- Robson Rhodes (17th June 1998) I agree that it is a difficult exercise to assess damages:
"where negligent information results in investment in and lending to a company which then trades on with increasing problems until a receivership nineteen months later, as happened in the present case" [or fifteen months later, as in this case].
In his speech in SAAMCo, Lord Hoffmann distinguished between "a duty to provide information for the purpose of enabling someone to decide upon a course of action and a duty to advise someone as to what course of action he should take" (at 214E). He went on to indicate that the measure of damages was more circumscribed in the former, than in the latter, case. It appears to me that, while there are aspects of the Report, particularly when read with the instruction letter, which could be said to constitute advice rather than information, the action, in so far that it would have been based on the Report, would have been an action for negligence in relation to the giving of information, and not in relation to the giving of advice. It might be said that the difference between "information" and "advice" can often be a matter almost of semantics, but I consider that when Lord Hoffmann was referring to "advice" it was to advice as to whether to go ahead with a particular course of action, rather than with advice on particular points: that seems to me to follow from the brief passage I quoted from his speech. I cannot pretend to be confident that the Report in the present case should indeed be treated as the provision of information rather than of advice, because Lord Hoffmann's observations have to be read in the context of the particular case before him, where he was dealing with a valuer providing a valuation, which would govern the amount that was lent, and would not so much govern the decision whether to lend or not. I see how it could be said in the present case that Touche Ross must have been aware that, although the acquisition price might well be influenced by the contents of the Report, CIN and the claimants were looking to the Report to assist them in deciding whether to go ahead with the acquisition at all. Accordingly, while I am not sure that it makes any difference in the event in this case, I consider that, in so far as it would have been based on the Report, the claimants' case against Touche Ross which had been based on negligent information.
On the other hand, the assurances, if given, were, I believe, more in the nature of advice rather than information. The very expression "no deal breakers" suggests that advice has been given as to whether to go ahead with the "deal" or not. Again, I cannot pretend that the point is clear, particularly as there is a obviously a strong argument for saying that anything that Mr Morris said has to be seen in the context of the instructions to Touche Ross, for whom he was working, and the terms of the Report itself.
Loss of Investment
Subject to any question of set-off, particularly relevant in Peter's case, the claimants each contend that they invested £101,500 in the Admiral shares, that this money was wholly lost, that they would not have put up any money if the Report had not been negligent and/or the assurances not given, and that they would therefore plainly have been entitled to recover these sums from Touche Ross, together with interest.
Miss Start raises two arguments on the facts in answer to this on behalf of the defendants. The first is that the claimants' investment in the Admiral shares (albeit indirectly through Fortbrave) was inherently very risky, not least because their shares ranked effectively behind those of CIN. Secondly, she says that each of the claimants lost his investment not so much because he had acquired a worthless investment, but because the Admiral Group's business did not prosper nearly as much as had been hoped and anticipated by the claimants and CIN, and, indeed, this was due wholly or in part to disappointment subsequent to the acquisition and/or the failure of the claimants to manage the company commercially, and not to any negligence on the part of Touche Ross.
So far as the first point is concerned, it does indeed seem clear, both from the way in which the transaction was structured as between the claimants and CIN, and from the oral evidence of the claimants themselves, that their investment in the Admiral shares (through Fortbrave) was for the purchase of what Miss Start called (and the claimants effectively accepted was) "a contingent income stream". However, I am not convinced that this aspect takes the defendants' case any further, save to emphasise that the claimants' shares in Fortbrave were more sensitive than those of CIN to the Admiral Group's turning out to be disappointing or badly managed. This is well illustrated by the facts as they transpired: when the receivers sold the business, CIN was paid out either substantially or else in full, whereas the claimants received nothing. Apart from that, however, it does not seem to me that the fact that the claimants' investment was contingent or risky would have itself been a factor which assisted Touche Ross in the action. There has been no evidence to suggest that the value of the shares in Fortbrave acquired by each of the claimants for their £100,000-odd would not have been worth what they paid for those shares (bearing in mind the fact that they ranked behind CIN's shares) if the Report had been accurate and satisfactory.
However, the argument that the business of Admiral deteriorated over the fifteen months, at least to the extent of removing or decreasing the value of the claimants' shares in Fortbrave, either due to bad luck or to the claimants' management, is a point which seems to me to present greater difficulties for the claimants. In this connection, Miss Start relies on a number of points.
First, she points out that, despite allegedly discovering, immediately after the acquisition, that the Admiral Group's business was in a significantly worse position that had been anticipated, the claimants (and indeed CIN) believed that the business was still viable. John said that, by March 1987, when the claimants had been effectively running the business for more than three months, they considered that they had a "weakened asset position" and that they had been, in effect, put back by one year from where they thought they would be on their five year plan. On its own, this evidence, if accurate, can be said to indicate that, because of the worse-than-expected position with regard to asset valuation and projected profits, the Admiral Group may well have been worth significantly less than what the claimants (and presumably CIN) had anticipated and that the Admiral shares were worth less than what the claimants and CIN paid for them. Given that the claimants' shares ranked behind those of CIN, this evidence can therefore be said to be consistent with the claimants' shares in Fortbrave having been worth significantly less than what the claimants paid for them, or indeed being worth nothing. However, it is fair to say that this evidence of itself cannot be said to indicate that the claimants' shares were actually worth nothing, albeit that they may not have been worth much. Apart from that, it may also be that, during the first few months of running the business, the claimants persuaded themselves that the position was really better than it was.
Secondly, Miss Start points out that there is good reason to believe that certain valuable contracts which the claimants had anticipated would be continued with or entered into by, AISG, did not in fact come off. One football club, Bradford City, which had contracted to wear the Admiral strip, ended its contract, and a prospective contract with another football club, Sunderland, which the claimants had hoped, indeed anticipated, would transpire, did not do so. Another problem arose in connection with the clothes shop Burtons: it was anticipated that they would sell the Admiral Group's goods, but they did not do so. John said that it "came as a surprise that we did not get Sunderland" and that it was also a "surprise" that the Bradford City contract was lost. This is evidence which does suggest that the value of the Admiral Group's business, and hence of Fortbrave and of the claimants' shares in Fortbrave, could have been detrimentally affected over the fifteen months following the acquisition by business disappointments. There is nothing to suggest that these disappointments were connected with any of the matters which could have been alleged against Touche Ross, save that the claimants may have been devoting their time to dealing with unexpected problems rather than keeping clients and prospective clients happy.
Thirdly, Miss Start points out that in December 1987 the claimants were contemplating putting a further £50,000 in to the business, and had found a third party who would invest a £100,000 in to the business. As John said:
"It appeared from the forecasts that we were preparing that things looked healthy. Healthy is the wrong word. It looks as though we were going to achieve our growth."
Indeed, it would seem that the reason that this particular transaction may not have gone ahead was because of the necessity to restructure the shareholdings in Fortbrave, which required the consent of Mr Geminder, which consent was not forthcoming. The claimants were sufficiently interested in the possibility of restructuring and, presumably, therefore putting further money in to the company in January 1988, to consult Counsel about what they could do if Mr Geminder's consent was not forthcoming. The decision to call in the receivers appears to have been taken only two days after they were advised by Counsel that there was little they could do in this connection.
Miss Start also relies on evidence which suggests that the decision to appoint receivers may have been due to a loss of nerve on the part of the claimants, and that that course was not really justified by the state of the Admiral Group's business in any event. In this connection, Mr Burgess of CIN said in his evidence that he thought that the claimants had "lost their nerve ... to a degree". He also said that he thought that:
"The management team were performing satisfactorily and [that] the business had a future. It certainly would have been sold for more money had we had the opportunity not to put it in to receivership and to sell it as a going concern."
The claimants did not accept that they suffered from a loss of nerve; their case was that they had soldiered along manfully doing their best for over a year, having been pitched in to something of a disaster through no fault of their own, and that, by the beginning of February 1988, the time had come to accept the inevitable, namely that the business could not be saved.
In my judgment, the points on which Miss Start relies in relation to this part of the case would have presented Touche Ross with a real argument on causation, even assuming that they had failed on liability. On the evidence I have heard and seen, it is possible that the court could have concluded that the Admiral Group got into difficulties and had to be put in receivership in February 1988, because of commercial misfortune (not connected with or arising from any negligence on the part of Touche Ross) during 1987 and/or because the inability of the claimants to arrange a restructuring due to Mr Geminder's intransigence and/or because of a loss of nerve on the part of the claimants.
Were the court to have concluded that all or a proportion of the loss of each of their £101,500 investment was attributable to one or more of these three causes, then it seems to me that, to that extent, the claimants would not have recovered from Touche Ross: to that extent, the loss would not have been suffered as a result of Touche Ross' negligence, or, to put the same point in another way, the loss would not have been within the scope of Touche Ross' duty.
However, the following points should be borne in mind. First, one only gets to this point if one concludes that the court would have found that Touche Ross had been negligent and that their negligence was such that, had the Report not been negligent, the acquisition would not have gone ahead. While it is possible that this negligence made no contribution towards the loss suffered by the claimants under the head I am currently considering, it seems to me unlikely. Secondly, as I have mentioned, the claimants' shares were more vulnerable, to negligent over assessments of the income or asset values of the Admiral Group, than those of CIN. Thirdly, given that the court would have found that the state of the Admiral Group's business was significantly less good in November 1986 than the Report suggested and the claimants had assumed, it would not have been particularly attractive for Touche Ross to argue that the claimants only had themselves to blame for doing their best to run the business for fifteen months before they gave up. Fourthly, the figures produced by Robson Rhodes seem to me to suggest that there was indeed some £140,000 less of assets in AISG than had been suggested by the accounts: if that "loss" should have been spotted by Touche Ross, or at least was within the scope of their duty, then it could be said, in a very rough way, to write off the great majority of the claimants' aggregate £203,000 investment, given that their shares ranked behind those of CIN. It is true that, in drafting their note for AISG's 1991 accounts (which were never finalised), Robson Rhodes were not prepared to identify the cause of the loss, but they were being professionally cautious.
Although all the various points I have so far been considering in this part of the tenth section of the judgement were the subject matter of evidence and argument, they were not developed to a great extent. To my mind, at least in relation to this first head of claim, the defendants' arguments on this issue does justify a significant deduction in the damages which the claimants would be able to recover.
Loss of Employment
The claimants' case under this head proceeds on the basis that they each gave up their employment as garden centre managers to take up employment with Fortbrave, and that, had they not acquired Fortbrave and taken up employment with that company, they would have carried on working in their father's garden centre business, and that they lost income accordingly.
So far as the claim in principle is concerned, it seems to me to be weak. Each of the claimants wished, in any event, to stop working in the garden centre, and Sir Ernest was anxious to sell the garden centres, which presumably would have of itself put an end to their respective employments. One of the garden centres, Codicote, was sold at the end of 1986; as for Woking, there were negotiations for its sale, and they were only delayed (for a substantial period) owing to the absence of planning permission for the development which the purchaser wished to carry out. It is, of course, possible that Sir Ernest would not have sold Codicote (or would have delayed its sale) if the claimants had not proceeded with the acquisition and gone to work for Fortbrave, but it appears to me that any such delay is unlikely to have been for a substantial period: it is clear from the evidence that Sir Ernest was in the process of trying to dispose of Codicote and Woking during 1986. Further, Sir Ernest could have been called to give evidence by the claimants. Indeed the defendants tried to obtain a proof of evidence from him, and to call him (but I decided to set aside the witness summons). Although Sir Ernest was reluctant to give evidence at the suit of the defendants, I believe that, if there was evidence he could have helpfully given for the claimants, he probably would have done so at the request of their solicitors.
Furthermore, once the claimants became unemployed in 1988, neither of them asked to be re-employed in Sir Ernest's garden centre business. While this is undoubtedly a point which Miss Start understandably and justifiably invokes to cast doubt on the likelihood of the claimants having remained managers of garden centres if they had not proceeded with the acquisition, it is fair to say that there can be a significant difference between continuing in a particular job and going back to that job, particularly in the sort of circumstances in which the claimants found themselves after the failure of their enterprise. It is clear that they were both thoroughly demoralised as a result of the debacle: John went to Australia to start again, and it was only after some time off that Peter took a job with Graydon.
So far as Peter is concerned, his claim under this head is for a loss totalling £72,000 (plus interest) based on the difference between the income (being salary and subsequent severance payment) which he actually received and that which he would have received. The income he actually received was (1) from Admiral part of the tax year to 5th April 1987, the whole of the tax year to 5th April 1988, and part of the tax year to 5th April 1989 and (2) from Graydon for part of the tax year to 5th April 1989 and the tax years ending 5th April 1990 to 5th April 1996 inclusive. The income he would have received is what he says he would have got from Jackmans in respect of part of the tax year to 5th April 1987 and each tax year ending 5th April from 1988 to 1996 inclusive. Even on the estimate which Peter put forward as to his likely level of income had he remained employed by Jackmans, his figures show that he was better off in the aggregate sum of just over £29,300 up to 5th April 1989. Again basing oneself on the income which Peter estimated that he would have earnt at Jackmans for the subsequent years, Peter only can show any loss if one projects forward to about 5th April 1991. (The loss that he says he made in the immediately preceding two tax years is a little greater than £29,300 to which I have referred, but once one takes into account interest, it seems to me that this is a fair summary of his case in this respect).
In my judgment, it would not be right to allow Peter any damages under this head. First, even on his own figures, he would not have established any loss unless he would have continued employment in Jackmans beyond 5th April 1991. In my judgment, it is substantially more likely than not that, if the claimants had not proceeded with the acquisition of the Admiral shares in 1986 or in 1987, Peter would have ceased employment at Jackmans before 5th April 1991. Given my view that Peter did not want to remain employed at Codicote but wanted to start up business on his own, and given the fact that Sir Ernest wished to dispose of the Garden Centres, it seems to me very unlikely that Peter would still have been employed at Codicote more than three years, let alone more than four years, after November 1986. Although Mr Burgess's internal CIN memoranda rather overstated the stage to which the proposed sale of the Garden Centres had got, I think that they do serve to underscore the fact that Peter, and indeed John, were aware of the fact that their father did not want to retain, and therefore to employ them in, the Garden Centre business much longer; indeed, it seems clear that they themselves were anxious to get out of that business.
Secondly, I am far from satisfied that if, Peter had continued to be employed by his father, would have received the sort of level of salary that is assumed in his claim (and that I have so far assumed). His claim is based on the assumption that his level of pay when he ceased employment at Jackmans was about £41,000 per annum (the assumed salary for the year ending 5th April 1988 had he stayed there) and that this would have increased with the retail price index. In the absence of any evidence either way, I would be prepared to accept that an increase in accordance with the retail price index was not unreasonable. However, the evidence suggesting that he would have received £41,000 per annum for the year ending 5th April 1988 is, to my mind, not satisfactory. The documentary evidence suggests that Peter was earning significantly less than this figure, and although he stated that he negotiated some sort of increase in his salary with his father, I am not satisfied that he would have established that his pay would have exceeded £40,000, or even £35,000, for the year ending 5th April 1988. Assuming (which I believe to be an assumption tending rather in his favour) that he would have established an increase from Jackmans of £35,000 per annum for the year ending 5th April 1988, it seems to me that it would not have been until some time during the tax year ending 5th April 1993 that he would have been in a position to start establishing any loss. In my judgment, that illustrates how difficult it would have been for him to establish any damage under this head.
In my judgment, there is no reason to think that Peter's position in April 1991, and, even more, April 1993, would have been any better, in terms of he aggregate salary and associated payments from November 1986, had he not gone ahead (together with John and CIN) with the acquisition of the Admiral shares and his employment with Fortbrave, than it was in light of the fact that he went ahead with such acquisition and employment.
Quite apart from this, it will be recalled that Peter's claim is for a total alleged loss of just under £72,000 for the period up to 5th April 1996. For the last 25 months of that period, Peter was receiving £1,000 per month from his father. Even if the court had been otherwise prepared to allow Peter something under this head, it seems to me likely that it would have deducted £25,000 from whatever sum it would otherwise have arrived at, on the basis that Peter's father would not have made these monthly payments if he had been paying Peter a substantial salary. It is fair to say that that is a matter of speculation, but, had I been of the view that Peter should otherwise be awarded something under this head, the figure would have had to have been adjusted downwards to take into account this factor.
In all the circumstances, I do not believe it right to award Peter any damages under this head. In light of the above analysis, it does not seem to me that he would have had any real prospect of establishing any loss under this head against Touche Ross. Further, it appears to me that, on this aspect, I am not in a very different position from that which the judge hearing the action would have been, and it is therefore easier for me to reach a firm conclusion on this point.
I turn now to consider John's position. The sum he claims under this head is substantially greater than that claimed by Peter: it is £197,597 plus interest. His claim is greater than that of Peter for three reasons. First, he left his employment with Fortbrave earlier than Peter; secondly, John did not receive benefits under a severance agreement; thirdly, John's income from his employment in Australia from 1988 to 1996 was less than the income enjoyed by Peter in his employment with Graydon over that period. Thus, although John was better off while employed by Fortbrave, even according to the earnings he says he would have enjoyed from Jackmans had he stayed there (his figures in this respect being the same as Peter's) there is only a credit of some £14,700 for the period up to the tax year ending 5th April 1988 (compared with Peter's aforesaid credit of £29,300 up to the tax year ending 5th April 1989, as mentioned above). Accordingly, at least on his figures, John already starts having a claim under this head, even given credit for the £14,700, during the twelve months ending 30th June 1989 (as opposed to Peter whose claim only starts with effect from about 5th April 1991).
On this basis, John's claim under this head therefore is rather stronger than that of Peter. It is right to mention an additional factor which points in the same direction, namely that, while the Garden Centre at which Peter worked, Codicote, was sold at the end of 1987, it does not appear that Woking, the Garden Centre at which John worked, was sold until 1996/97 or later (because of planning problems). However, a new manager was of course, employed at Woking, from September 1986. Accordingly, although of course it is conceivable that Sir Ernest would have deferred such sales while his sons were employed as managers, it does appear a little more likely that John could have retained his employment with Jackmans than Peter. On the other hand, John's failure to return to that employment in early 1988 could be said to be more significant.
Indeed, it does appear to me that, like Peter, John was not content working for his father, and, while it is obviously a matter of speculation to some extent, it seems to me more likely than not that he would have left his father's employment within a couple of years of November 1986, and possibly significantly earlier, if the claimants and CIN had not gone ahead with the acquisition of the Admiral shares. Having previously worked in New Zealand, and having family connections in Australia, and apparently being content with living in Australia rather than in this country, it seems to me probable that, if the claimants had not acquired the Admiral shares, John would not have wanted to remain employed in his father's business in this country, and would have gone to Australia in any event.
In all these circumstances, I find it more difficult to decide in the case of John, as opposed to that of Peter, whether or not to allow anything under this head of damage. On the one hand, John's loss under this head starts on a date significantly earlier than that of Peter, his claim is substantially greater, and, from the date his loss commences, his father still had the business at which whose claim assumes that he would have continued to be employed had the acquisition not proceeded. On the other hand, even accepting his figures, he would have had no claim unless the court concluded that he would have still been employed at Woking by his father in early 1989 had he not acquired the Admiral shares, and I consider, on the evidence, that it is more likely than not that he would not have been employed at that time on this hypothesis; additionally, because, as with Peter, John's assumed earnings at Jackmans as set out in his claim are, in my judgment, too high to be justified on the evidence, I have to approach this on the basis that he would have to show that he would still have been employed at Jackmans around the beginning of 1990 before he could have recovered any damage under this head. Additionally, as with Peter, it seems to me that I am not in a very different position from that in which the trial judge hearing the action would have been, so far as the evidence and arguments on this point are concerned.
I have reached the conclusion that it would be appropriate to award John some damages under this head. He did not have a real chance of establishing a loss of earnings on the evidence I have heard, and taking into account the factors I have mentioned. However, bearing in mind the likelihood that John would probably have ceased his employment at Woking in any event by some time in 1989 or earlier, and also that I consider that his projected earnings at Woking had been significantly overstated, I think that, while he is entitled to something under this head, John is not entitled to a very large sum.
When considering the question of damages, and indeed all the issues raised in this case, Miss Start, quite correctly in my judgment, encourages me to adopt an analytical attitude to the evidence, the issues, and the prospects, rather than taking the easier, but perhaps less intellectually respectable, route of arriving at a figure "doing the best I can". Throughout this judgment I have tried to adopt the attitude suggested by Miss Start, because it seems to me to embody the right approach, at least in a case such as this where the parties have gone into every main aspect (and some more minor aspects) of the claimants' claims in considerable detail. However, I must confess that, in relation to John's claim under this head, an analytical assessment is very difficult, not least because of the various imponderables. I am left with the uneasy feeling that, if I carried out an analytical exercise, it would in reality involve "dressing up" various figures and percentages in order to arrive at what I considered was the right sum. In those circumstances, I have come to the conclusion that it is right simply to award what I believe to be a correct sum under this head bearing in mind all the factors I have mentioned. In my judgment, had the claimants succeeded in full in the action, John would have been awarded £20,000 under this head, with interest running from 31st December 1988. This date of 31st December 1988 again involves a broad brush approach, but I believe that it reflects a fair average date over which the £20,000 may have reasonably have been expected to run.
Loss of Value of Property and Moving Expenses
At the time of the acquisition, Peter lived in a house called High Pastures, Wheathampstead; he entered into a contract to sell that property in early December 1987, and he subsequently moved to a smaller and cheaper property as a result. His case originally was that this move was as a result of the financial pressures of him from borrowing the money to invest indirectly in the Admiral shares, and that this pressure would not have been suffered if he had not made the investment or if the financial position of the Admiral Group had been as described in the Report, or, indeed, if there had been no "deal breakers". However, during the course of his oral evidence, Peter made it clear that both the claimants had contemplated during the negotiations for the acquisition that, if those negotiations were successful, they would both move nearer Leicester, so that they would be living much closer to the headquarters of the business that they would be running.
In these circumstances, Mr Salter argues that Peter would have succeeded in recovering from Touche Ross two heads of damage, both arising from the fact that, if the Report had not been negligently prepared and/or the assurances not given, the claimants would not have gone ahead with the acquisition, and Peter would not therefore had sold High Pastures. The first head of damage is the increase in value in High Pastures which would have accrued due to the general rise in the property market from the beginning of 1988 to date; the second head of damage is the costs associated with the sale of High Pastures and the move to the new, smaller house. Mr Salter argued that Touche Ross had actual notice of this sort of damage (which therefore falls within the second limb of Hadley -v- Baxendale (1854) 9 Exch 341).
Peter's evidence as to why he exchanged contracts for the sale of High Pastures was somewhat confusing, but in the end I have reached the conclusion that the dominant, and conceivably the sole, reasons motivating the sale were not so much because of the financial pressure on him due to the money he had borrowed to invest indirectly into the Admiral Group initially, but partly because of his intention to move nearer to Leicester, and partly because he was contemplating injecting further money into Admiral. As I have already mentioned, at the time Peter exchanged contracts for the sale of High Pastures, the Admiral Group's prospects were (unfortunately only temporarily) looking more promising to the claimants. I believe that Peter's dominant view at that time (but sadly for not much longer) was that, despite all the disappointments that the claimants had encountered at Admiral since the acquisition, they were still set on making a success of it. This is confirmed by the oral evidence of both claimants. For example, in cross-examination, John agreed that around the time he agreed to sell his house (in November or early December 1987, i.e. around the same time as Peter agreed to sell his house):
"It was looking as though we might be able to achieve some substantial growth, providing things happen the way they were meant to."
Peter also agreed that at that time things looked promising. This is confirmed by the fact that, as I have also already mentioned, the claimants were considering putting in further money into Admiral, and were soliciting for further third party investment in Admiral, with (they thought) some real prospect of success.
No doubt, the claimants may have had at the back of their minds the fact that, if the business got into such difficulty as to become irretrievable and they effectively lost their investment, moving to cheaper properties and thereby realising some of the equity on their respective houses would make sense. However, it seems tolerably clear to me that, on the evidence, that was not the dominant purpose for which Peter sold High Pastures.
In these circumstances, I consider that Peter would have had very little prospect of recovering damages for his loss of the increase in value of High Pastures from 1988 from Touche Ross. It is true that, on an unlimited application of the "but for" test, Mr Salter can say that this loss was "caused" by Touche Ross's alleged negligence, in that (assuming the claimants established liability against Touche Ross) but for the Report and/or the assurances, the acquisition would not have gone ahead, and Peter would very probably not have sold High Pastures, and would therefore have enjoyed the consequent effect of the rise in the property market. However, even if the dominant purpose in selling High Pastures had been because of the liability Peter had assumed when borrowing the money to invest indirectly in Admiral, I doubt that his claim would have been sustainable: Touche Ross's function was to give information (or, arguably, advice) in relation to the Admiral Group as a possible investment; it was no part of Touche Ross's function to advise the claimants whether to invest in the Admiral Group or to keep their respective houses. Even that could be said to be too favourable a way of putting the claimants' case, because Touche Ross had no reason to know whether there was any risk, and if so the degree of risk, of Peter having to sell High Pastures if he charged it to secure the money he was proposing to borrow to invest indirectly in the Admiral shares.
It would be wrong to pretend that I find the point completely straightforward, because there are dicta which indicate that, where a claimant acquires an asset on the basis of negligent advice from a defendant, his damages can include something on account of the profit that he might have made on the acquisition of another business (see e.g. County Personnel (Employment Agency) Limited -v- Allen R Pulver & Co. [1987] 1 WLR 316 at 926 F-H per Bingham LJ). However, the extent to which those observations are reconcilable with the principles laid down in SAAMCo appears to me to be questionable: it may be that the claimants can recover such sums in a negligent advice case, but not in a negligent information case. Given that there was a small, but real, prospect of succeeding on the negligent advice argument (if the claimants had established that the assurances were given) it seems to me that, if Peter had established that he had sold High Pastures primarily because of the borrowing he had made to invest indirectly in Admiral, he would have had a prospect (albeit a pretty limited one) of recovering damages for his inability to enjoy the rise in value of High Pastures after he had sold it.
However, I consider that that possible prospect is weakened by the fact that, at least in my view, Peter's dominant purposes in selling High Pastures was to move nearer Leicester and to enable him to have further money to invest in the business. In those circumstances, while, as I have said, on the widest application of the "but for" test, he would have been able to show that Touche Ross (if negligent) would have "caused" the loss, I believe that Touche Ross's alleged negligence would not have been held to have been "an "effective" or "dominant" cause of his loss" to quote from the judgment of Glidewell LJ in Galoo Limited -v- Bright Grahame Murray [1994] 1 WLR 1360 at 1374G. In other words, applying the reasoning and principles in the text book and cases discussed in Glidewell LJ's judgment from 1370A to 1374G, it seems to me that the loss which Peter suffered under this head would not have been held to have been attributable to Touche Ross.
If Peter had recovered under this head, he would have had to establish what the loss was, and he would also have had to have set off the gain that he has made from the rise of the property market over the same period in relation to his new, albeit less valuable, house. The valuation evidence led on behalf of Peter on this issue was, in my judgment, rather unsatisfactory, even allowing for the fact that this is a "loss of a chance" case, particularly as, rightly or wrongly, both parties have chosen to go into four other issues in fairly considerable detail. There is a half-page report from an estate agent, with no professional qualifications, on High Pastures stating that "it is difficult to put a precise figure on the property because of its individuality" but that, in the market as at February 1996, it should fetch "in the region of £450-475,000". The estate agent has not been submitted for cross-examination. The evidence of the value of Peter's new house is similarly brief and informal.
In light of the above considerations, I take the view that Peter's prospects of recovering any damages under this head against Touche Ross, even if he established liability against them in the action, would have been poor. Bearing in mind that his potential claim would, I suspect, have run into six figures, the question I must address is whether I should allow something for this head of damage bearing in mind that this is a "loss of a chance" case, or whether I ought to rule it out altogether. I have come to the conclusion that, in relation to this head of claim, the latter approach is correct. The primary reason is that I consider that Peter's prospects of success under this head would have been simply too weak, and the fact that he could have, as it were, threatened Touche Ross with a claim which was, in the context of the other heads of claim in the action, comparatively large is not something which should properly be taken into account to his credit (see e.g. per Brooke LJ in Wilkinson). The point can be put in two ways. (1) Peter would have faced what I regard as a very uphill task indeed of persuading the court that he should recover damages under this head even though he decided to sell High Pastures primarily to move nearer the business and to enable him to invest further money in the business, at a time when he had been working there for a year and was cautiously optimistic. (2) Alternatively, Peter would have had the equally uphill task of persuading the court both that his primary reason for selling the house was because of his burden of debt due to his borrowing to invest initially in Admiral indirectly and that this would have justified the head of claim in principle. So far as (1) is concerned, it seems to me that Peter's difficulties as a matter of law would have been very considerable indeed. As to (2) although Peter's difficulty in law would have been less substantial, it still would have been difficult; additionally, in light of the evidence I have heard, I believe that he would have faced difficulty on the facts.
A further, but very much of a secondary, possible reason for reaching this conclusion is the unsatisfactory nature of the evidence. The estate agent has not been cross-examined, although I suppose that I could either accept his figure or apply some sort of discount to it. If this aspect, namely the insufficiency of the evidence put forward on behalf of Peter, would have been determinative of Peter's claim under this head, I would probably have been prepared to take a figure, and it would have been a comparatively small figure, on the basis of the evidence, unsatisfactory as it is. However, for the reasons I have been considering, that does not seem to me to be appropriate.
For the same reasons, I do not consider it appropriate to allow Peter anything in respect of the cost of selling High Pastures and the costs of moving from High Pastures.
It is unnecessary to consider John's claim under this head in any detail. Although John agreed to sell his house at around the same time as Peter, completion was delayed for a longer period, and, after completion, he went to Australia. As I see it, the analysis of his claim under this head is either the same as that of Peter or even weaker. It may be even weaker, because, even if he had not agreed to sell his house in November or December 1987, it seems to me clear that he would have agreed to sell it in 1988, because he intended to go to Australia.
- SET OFFS AND COUNTERCLAIMS
If the Report had not been negligent, then it is inherent in the claimants' case that the acquisition would not have gone ahead. If the Report had, therefore, been in the terms that it should have been according to the claimants' case, the arrangement between CIN, the claimants and Touche Ross was such that the claimants would have been responsible for the costs of the Report: see the instruction letter. In those circumstances, the claimants would have been out of pocket to the extent of the fee for the Report which would have been negotiated with Touche Ross. It is therefore common ground that this sum would have been deducted from the damages which the claimants would have obtained from Touche Ross.
There is, however, an issue as to the appropriate sum. The claimants contend that it is £10,000, based on the initial discussion and estimate of £10,000 to £20,000. The defendants contend that the correct figure is £30,000, as that is what Touche Ross indicated they would charge for the Report after it had been prepared. I consider that £30,000 is significantly too high a figure. First, it is clear from the subsequent negotiations that Touche Ross was prepared to agree a reduction to £25,000 or even to £20,000, and it is obviously conceivable that they might have agreed a still lower figure, but it is right to say that this was in different circumstances from those which would apply in the circumstances that I am assessing. Secondly, I have seen no good reason why Touche Ross should have been allowed to go outside the original estimate. Thirdly, it seems to me that, bearing in mind their potential future relationships with CIN and Sir Ernest Harrison, I suspect that Touche Ross would not have been inclined to press hard for the maximum possible fee for a Report for a proposed acquisition which eventually fell through. Bearing in mind all these factors, I consider that the correct figure to take is £15,000. It is midway between the initially discussed £10,000 to £20,000; it also reflects the subsequent discussions (although, as I say, they were in a different context from the hypothesis I am considering here).
At one point, Miss Start suggested that there should also be taken into account against the claimants' claim, the liability to pay for the Review. I can see no basis for this: it seems to me that the person liable to pay for the Review would have been Fortbrave.
Secondly, there is the fact that in Peter's case, he received from Fortbrave £30,000 in cash, plus the benefit of half the payment from Mr Geminder in respect of the warranties (i.e. £25,000). Given that I have concluded that the claimants should not be awarded anything in respect of their alleged loss of income, it seems to me that the sums that Peter was paid for loss of office under his arrangement of 9th November 1988, should not be credited against him for the purposes of the action or for the purposes of these proceedings. In those circumstances, I consider that they represent a credit which Touche Ross in the action could have set off, or the defendants in these proceedings can set off, against any liability to Peter in relation to the loss of the money he invested in Fortbrave in reliance of the Report and/or the assurances. The loss for which Peter would be entitled to damages was a loss as an investor, whereas the benefits he received under his severance agreement with Fortbrave in 1988 was compensation for his loss of employment. Having held that Peter is not entitled to recover the possible damage he may have suffered through having given up his job at Codicote and taken up employment with Fortbrave or the Admiral Group, it seems to me wrong that there should be credited against any claims he would otherwise have a benefit he received for being forced out of that employment. Further, it is plainly very difficult to assess the nature of any employment Peter might have had, and the terms of that employment, if he had not taken up employment with the Admiral Group at the end of 1986; just as much as it seems to me inappropriate to assume that he would have been better off if he had not taken that employment (and therefore to allow him no damages in this connection) so it appears to me wrong to assume that he would have been worse off if he had not taken up that employment (and therefore inappropriate to credit against him the benefits which he received in return for giving up that employment).
However, the half share of the proceeds of the claim against Mr Geminder on the warranties which Peter received was accepted by Mr Salter as being properly set off against his claim against Touche Ross. This sum is £25,000 and I will accordingly take it into account in the twelfth section of this judgment.
It is also contended by Miss Start that the settlement of the warranty litigation was on terms which were too generous to Mr Geminder. However, I do not accept that there was any substantial prospect of establishing that the terms upon which the warranty litigation was settled with Mr Geminder was unreasonably generous to Mr Geminder. The warranty litigation would have been expensive, time consuming and uncertain in terms of outcome. There is nothing to suggest that the settlement terms were unrealistic. Further, if, as appears to me on the basis of the evidence I have heard, to be a possibility, Mr Geminder was not an entirely reliable person, there could well have been concerns about the possibility of recovering on any judgment debt or order for costs against him.
- CONCLUSION
If they had succeeded in establishing breach of duty against Touche Ross in the action then, subject to causation, and any set-off or counterclaim, I consider that each of the claimants would have recovered £101,500 each plus interest down to 15th October 1996 in the action. In addition John would have received £20,000 for loss of earnings.
However, the figure of £101,500 must, in each case, be reduced, first, to take into account set-offs which, as discussed above, would have been applied in the action, and, secondly, to take into account that this is not the action, but a "loss of a chance" case. So far as the first type of deduction is concerned, it seems to me that, in light of my above findings, two deductions are appropriate. The first is a deduction, applicable to each of the claimants, to take into account the sum which the claimants would have had to pay Touche Ross for the Report, a deduction which is accepted in principle by the claimants. The sum involved is not agreed, but I have held that it should be £15,000, and it appears to me that this should be distributed equally between the claimants. In Peter's case, there is a further deduction, which is again accepted by him, of £25,000. Accordingly, subject to the second class of deduction to which I shall shortly turn, it appears to me that:
1. John is entitled to (a) £94,000 with interest from 17th November 1986 until 15th October 1996, plus (b) £20,000, with interest from 31st December 1988 until 15th October 1996;
2. Peter is entitled to £69,000, together with interest on that sum from 17th November 1986 to 15th October 1996, and with interest on £25,000 from 17th November 1986 until 17th November 1990, two weeks after the settlement with Mr Geminder (when it is reasonable to assume that he received the £25,000);
3. Additionally, each of the claimants is entitled to interest on the sum so computed from 15th October 1996 until the date of this judgment.
The appropriate rate or rates of interest will have to be agreed between the parties or determined by me.
However, as I have said, this is a loss of a chance case, and these sums need to be further discounted. In my judgment, two discounts are appropriate. The first arises from the uncertainty of the claimants establishing negligence against Touche Ross. As I have indicated, it appears to me that the claimants would have stood a better than evens chance of establishing negligence in connection with the Report; accordingly, in the absence of any claim with regard to the assurances, I would think it right to apply a discount of 40% to allow for the uncertainty in this connection. However, I have come to the conclusion that it would be right to reduce this discount a little because the claimants would have had a chance of improving their case in the action in reliance on the assurances. That aspect does not justify a substantial adjustment in the claimants' favour, because (a) their prospects of establishing that the assurances were given appear to me rather less than evens, (b) even if established, the assurances would not have taken the claimants' case against Touche Ross very much further, and (c) there would have been an additional problem in that Touche Ross would have had a prospect, albeit not a very strong one, of contending that, even if the claimants would otherwise have succeeded on the assurances, they were unreasonable in relying on those assurances. In my judgment, the claimants' reliance on the assurances justifies a reduction in this first discount from 40% to 35%. This produces a figure of (a) £61,100 plus (b) £13,000 for John and £44,850 for Peter (plus interest in each case).
A second discount must also be applied to take into account the fact that the claimants would, in my judgment, have faced a real prospect of being defeated on the ground of causation as discussed in the ninth section of this judgment. In other words, I consider that there is a real risk that even if negligence had been established against them, Touche Ross would have been able to show that a significant proportion (or, conceivably, all) of the damage suffered by the claimants could not fairly be said to have been caused by their negligence. My assessment of the strength of the case against the claimants' in this connection is such that I have come to the conclusion that a discount of 20% is appropriate for this factor. This reduces the damages to be awarded in the case of John to (a) £48,880 and (b) £10,400 and, in the case of Peter, to £35,880. In each case the claimants are also entitled to interest, calculated in accordance with paragraphs (1), (2) and (3) as set out above, save that the interest awarded to John will be calculated on the aforesaid sums of (a) £48,880 and (b) £10,400, and the interest awarded to Peter will be calculated on £35,880 to 15th October 1996, and on a further £13,000 to the date he received the £25,000 from Mr Geminder.
These are not very large sums (especially in Peter's case) and I have revisited the question of whether the claimants would have proceeded with the action in light of these figures. I do not change my conclusion on that issue. The figures show that, many people, in the claimants' position may have had doubts as to whether the action was worth the effort, risk and expense. However, I make the following points. First, such an assessment would to an extent be based on wisdom of hindsight. Secondly, these figures result from my assessment after a pretty full trial. Thirdly, even on these figures, many people might feel the action to have been well worth pursuing. Fourthly, whatever lack of attraction the outcome of the action may have had for the claimants, it would have been even more unattractive to Touche Ross: without a settlement or a payment into court, they may well have been found negligent and liable for both sides' costs.
It is suggested by Miss Start that irrecoverable fees and costs should be taken into account against the claimants. If they had been legally aided this would clearly be inappropriate. Even if they had not been legally aided, I do not see why it should be assumed that their costs would have been more than reasonable which would entitle them to full recovery. In any event, I consider that, if the writ had been validly served, it is likely that the claimants' claims would have been settled well before any hearing would have taken place. The amounts involved, and the potential level of costs and the risks to each side would have seen to that. I have no reason to think that the claimants would not have settled at the sort of figures which I am awarding. As matters progressed, I believe that they and their advisers would have seen the risks which had not been appreciated earlier. Further, assuming that the claimants were legally aided (which I do in light of the conclusion in the fifth section of this judgment) the Board would have been advised not to continue legal aid if the claimants refused to accept realistic settlement figures. Touche Ross would, I think, have been anxious to get rid of the litigation. I do not consider that they or their advisers would have thought it worthwhile to risk fighting the action to trial not least because they would have concluded that the claimants had a reasonably good prospect of success, and because of the amounts involved.
Nonetheless, I have not assessed damages on the basis that the action would have settled, as neither party addressed me on that possibility (other than in general terms, and really only on the principle as discussed in the fourth section of this judgment). However, in any event, even if I had assessed damages on the basis that the action would have settled, I very much doubt that it would make a significant difference to the eventual outcome.
In the event, I conclude that:
1. John is entitled to (a) £48,880 plus interest from 17th November 1986 to 15th October 1996 and to (b) £10,400 plus interest from 31st December 1988 to 15th October 1996;
2. Peter is entitled to £35,880 plus interest from 17th November 1986 to 15th October 1996 plus interest on £13,000 from 17th November 1986 until 17th November 1990;
3. Additionally, each claimant is entitled to interest on the sums so computed from 15th October 1996 until the date of this judgment.
POST SCRIPT
I regret that judgment has taken so long to produce. It is partly a function of the complexity of the case and the subsequent pressure on the court's time. However, it is also due to the fact that the hearing overran considerably. When Counsel significantly underestimate the likely length of a hearing, their clients can scarcely complain about a delay in delivering the judgment. The disruption to the court's timetable, as well as the delay in other litigants getting their cases on for hearing, arising from the underestimate cannot be expected to be compounded by the judge further disrupting the lists by taking time off to write the judgment following that hearing.
I should also add this, in fairness to the Touche Ross personnel involved in the Report (and indeed to Mr Geminder). They may feel aggrieved that I have made findings or arguable findings in relation to their conduct. They are not parties to these proceedings and have not been represented. Any actual or provisional findings I make about them are as between the parties to these proceedings and not as against them.
MR. JUSTICE NEUBERGER:
1. INTRODUCTION
This is a claim for damages brought by two brothers, Peter Michael Harrison and John Stewart Harrison (to whom I will refer as "Peter" and "John", for the sake of simplicity and brevity). They are suing a firm of solicitors, now dissolved, called Bloom Camillin ("the defendants") for damages which they claim to have suffered as a result of the defendants' failure to serve a writ ("the writ") on their behalf on a firm of accountants, Touche Ross, within the relevant limitation period. The writ was founded on the alleged negligence of Touche Ross when allegedly acting for, and advising, Peter and John ("the claimants") in connection with the acquisition of shares in the Admiral Group of companies in 1986. The claimants accordingly contend that, as a result of the defendants' breach of duty (which is admitted), they have lost the opportunity of suing Touche Ross, and recovering substantial damages from them. To use a current expression, employed by both sides, the claimants are claiming for "loss of a chance".
The arguments and the evidence have ranged over a number of issues, many of which I have not found easy to resolve. Ignoring adjournments, the hearing lasted a total of eighteen days, which was significantly longer than the time estimate provided by the parties. This is partly, but only partly, explained by the unfortunate fact that leading counsel briefed on behalf of the defendant fell ill during the currency of the case and had to withdraw, and also by the fact that one day was taken up with argument concerned with a witness summons.
The remainder of this judgment is divided into following sections:
2. The relatively uncontroversial facts.
3. What would have been the likely hearing date of the Touche Ross action?
4. The proper approach in a loss of chance case such as the present claim.
5. If the writ had been properly served, would the claimants have proceeded with their action against Touche Ross ("the action")?
6. What were the claimants' prospects of establishing that they were owed a duty by Touche Ross?
7. What were the claimants' prospects of establishing a claim against Touche Ross for breach of such duty?
8. What were the claimants' prospects of establishing reliance against Touche Ross?
9. What were the prospects of contributory negligence being established against the claimants?
10. What is the likely level of damages which would have been awarded to the claimants if they had succeeded in the action (including the question of causation)?
11. What set-offs or counterclaims would have been open to Touche Ross?
12. Conclusions.
The claimants are the twin sons of Sir Ernest Harrison, who made his reputation as a businessman primarily in the field of electronics. In the early 1980's, Sir Ernest started a business comprising two garden centres, which traded as Jackmans. One of those centres was in Woking, Surrey ("Woking") and was managed by John, assisted by Michael Harrison ("Michael"), Sir Ernest's son by a subsequent marriage; the other was at Codicote, Hertfordshire ("Codicote") and was managed by Peter. Consideration had been given to expanding the garden centre business, but this was rejected on the grounds of expense. John, a qualified chartered accountant, and Peter, who had trained as a chartered accountant but had not passed his examinations, decided, after discussion with their father and Michael, to start up their own business in another area.
The events of 1986
The claimants contacted a friend and business acquaintance of John, called Michael Smith, a partner in Capital Consultants, a firm of corporate advisers, to assist in the search for a suitable business to acquire. Some time in May, he placed an advertisement in the Financial Times seeking potential vendors of businesses. On 28th May, in answer to the advertisement, Mr Smith was telephoned by a Mr Rodney Geminder, who informed him (according to Mr Smith's apparently contemporaneous note) that he owned a company "based in Leicester" which had "operated since 1973" and which was the proprietor of "an internationally famous brand name part-owned with Swiss company" and that he wanted between £750,000 and £1m for the company whose potential he is recorded as describing as "enormous".
The business in question traded under the name Admiral and involved the sale of sports clothes and shoes under that mark. The main trading company in this country was Admiral International Sports Group Ltd ("AISG") of which Mr Geminder owned 95%. There was another company, Admiral International Sports Products Ltd ("AISP") which was wholly owned by Mr Geminder, but which was dormant. There was also a Swiss company Admiral Licence Suisse AG ("ALSAG") of which Mr Geminder owned 49%. ALSAG had licensed AISG to use the mark "Admiral" in the United Kingdom and Ireland. I shall refer to these companies as "the Admiral Group".
Thereafter, there were meetings with Mr Geminder (attended by either or both of the claimants), on 12th and 24th June and 7th July. At these meetings, Mr Geminder painted a rosy picture of the financial position and prospects of the Admiral Group. At the last of the three meetings, Mr Geminder provided the claimants with copies of AISG's audited accounts for the calendar year 1984, its draft audited account for the calendar year 1985 and its draft management accounts for the six months ending 30th June 1986.
The claimants, principally John, then began work on an "acquisition plan" in respect of the Admiral Group, and AISG in particular. The acquisition plan contained thirteen pages of text and sixteen appendices. The "summary" towards the end of the acquisition plan was in the following terms:
"This international trading company has enormous potential for future growth. It benefits from the following:-
1. It is NOT CAPITAL INTENSIVE.
2. It is a TRADING COMPANY NOT A MANUFACTURER
3. It has trademarks in 120 countries around the world which can generate enormous royalties.
4. The UK market alone is HUGE (worth £800m at Retail Prices).
5. It has strong growth margins which can be maintained.
6. It requires only a small number of staff and limited technical expertise."
The conclusion of the acquisition plan was:
"The Five Year Plan [as set out in the acquisition plan] whether assuming only 10% growth or 30%, which looks realistically achievable, provides a strong financial base, which coupled with increasing royalty payments makes a purchase price of approximately £1.2m plus working capital very reasonable"
The acquisition plan ended with the suggestion that a "family company" should be formed to acquire the Admiral Group, and that each of Sir Ernest's five children (the claimants, Michael, and Sir Ernest's two children by his present marriage) should each have 20% of the shares in the new family company.
However, at a meeting at Sir Ernest's house on 28th July, Michael said that he was not interested in this proposal. Sir Ernest also said that he was not interested in the proposal because he did not want to expand his business interests at the time. The claimants remained interested, indeed keen. They were pleased to learn that, although he did not wish to be involved, Sir Ernest, clearly a strong character with significant influence over his sons, did not object to them proceeding with their proposed acquisition of the Admiral Group.
The claimants appreciated that they could not raise nearly sufficient funds to proceed with the acquisition of the Admiral Group on their own, and they consulted Mr Ken Potter, a partner of Touche Ross, who provided accounting services to various of Sir Ernest's businesses, including Jackmans. He suggested that they approach CIN Industrial Investments Ltd. ("CIN") a reputable and experienced venture capital company. Accordingly, on 29th July, John wrote a letter to CIN to see if they were interested, enclosing the acquisition plan and stating that "we firmly believe that Admiral has tremendous potential".
On 30th July, the claimants and Mr Smith visited Mr Geminder at his Watford offices, and agreed terms in principle whereby the claimants would acquire the great majority of Mr Geminder's shares in the Admiral Group. These terms were recorded in "heads of agreement" which identified the "total consideration" as £930,000, was made up as follows. £200,000 was for "the freehold of the present premises at Leicester" (at 52 Gateway Street and which I shall call "the Leicester property"); £630,000 was for 85% of the shares in AISG and AISP (because the basis of the agreement was that Mr Geminder was to retain 10% of the shares, and because there was a 5% external shareholder) and all of Mr Geminder's shares in ALSAG; there was a further £100,000 adjustment. I shall refer to the shares in the Admiral Group companies which were to be acquired from Mr Geminder as "the Admiral shares".
The following day, the claimants and Mr Smith visited CIN's offices where they met Mr Mark Burgess, a chartered accountant employed by CIN as an investment assistant. The result of the discussions at that meeting was promising, and Mr Burgess wrote a letter to John the next day, 1st August, suggesting a way in which the acquisition of the Admiral shares ("the acquisition") might be funded. He proposed that there should be four shareholders, namely CIN, another institution, and the two claimants, although he emphasised that the letter was "simply a basis for further discussion".
The claimants and Mr Burgess formed the view that the purchase price for the Admiral shares should be funded in part, and the working capital requirements of the Admiral Group after purchase should be funded substantially, through bank borrowing. Accordingly the claimants investigated the possibility of raising money from banks. The results were not very encouraging. For instance, Barclays Bank were not very keen on the proposals, at least partly, it would appear (from a letter of 4th August) because of "concerns that particular management skills [the claimants] would have in this particular business". Over the next three months, a number of other banks were approached (National Westminster, Standard Chartered, TSB, Gothe Bank), and they were not enthusiastic either. Although the Bank of Scotland ("BOS") was eventually prepared to lend money to the Admiral Group, it was only on the basis that the price paid for the Admiral shares was significantly reduced from what had been agreed in principle with Mr Geminder.
On 7th August, Mr Burgess prepared a "discussion paper" to enable the proposed acquisition to be considered by CIN's investment committee. The paper included the following:
"The Harrison (twins aged 35) had been successfully running two garden centres for the past few years (on their father's behalf). The business is to be sold and they advertised for and obtained the Admiral opportunity."
The discussion paper also stated that the claimants "believe that with the strong marketing and financial input they can bring to the business, it should be able to grow substantially in the next five-seven years". The discussion paper said that the claimants were "experienced middle managers", John being described as an "ACA with experience of leisure wear and manufacturing in New Zealand and retailing" and Peter as "a "failed accountant" who had worked with BHS and a small accountancy practice as well as running a garden centre."
Following the investment committee meeting on 11th August, Mr Burgess wrote a formal, albeit expressly "subject to contract and trustee approval", letter on 12th August to the claimants stating that CIN was "prepared to make an investment in a new company … being formed to acquire Admiral ….and its subsidiaries…". This was subject to certain express conditions precedent which included:
"The investment of £100,000 each by [the claimants].
Satisfactory audit and Accountants Report, to be prepared by Touche Ross, giving due emphasis to the Cash Flow forecast.
Satisfactory banking facilities.
Terms of the sale and purchase agreement, including warranties, being satisfactory to CIN."
The choice of accountants arose from the discussions at the 31st July meeting: Mr Burgess had asked the claimants which firm they would like to instruct in the matter, and they had suggested Touche Ross.
The letter of 12th August also set out the proposed structure of the shareholdings in the new company. The letter ended as follows:
"All costs incurred in relation to this transaction, including the accountants investigation and CIN's legal costs will be met by the [new] company. This element of our offer is not subject to contract and will be borne by [the claimants] should any party to the agreement withdraw before completion for any reason."
On the same day, 12th August, the claimants signed an agreement with Mr Geminder which recorded the fact that they would pay £700,000 (less £55,294) for the Admiral shares, and £200,000 for the freehold of the Leicester property, subject to certain terms, which included an obligation on Mr Geminder to "provide whatever assistance is reasonably required to facilitate the purchase".
Meanwhile John had got back in touch with Mr Potter, who introduced him to Mr Ian McIsaac, who was then a partner in the corporate division of Touche Ross. John met Mr McIsaac for lunch on 13th August, and they discussed the acquisition plan. John said in his evidence that he made it clear to Mr McIsaac that the information contained in the acquisition plan, had been provided by Mr Geminder and that it had not been verified by the claimants, as they had had no access to the books of the Admiral Group. Mr McIsaac did not deny that this was said, and I see no reason not to accept that evidence. John also discussed with Mr McIsaac how the claimants could fund their financial input into the purchase (which was to be in the region of £100,000 each). John said in evidence, and again I see no reason to doubt it, that he mentioned to Mr McIsaac that he and Peter would probably have to grant second mortgages over their respective houses in order to raise the money.
On 14th August, Mr Burgess telephoned Touche Ross, and a message to call him back was left with Mr Stephen Morris, who then worked in Touche Ross's financial services division. It appears that, following his discussion with John, Mr McIsaac had decided that the initial point of contact at Touche Ross should be Mr Morris. The note Mr Morris received on 14th August recorded that Mr Burgess of CIN had said that there would be a meeting the following day. It seems that Mr Morris spoke to Mr Burgess on the telephone on the afternoon of 14th August, when he was told that an accountant's report was required in respect of the Admiral Group which "two individuals supported by CIN" proposed acquiring for around £1m, that an "audit may be available", that "Report timetable expected over 3 weeks by say end Aug/early Sept" (with a draft within two weeks), and that CIN was expecting to be charged between £10,000 and £20,000. There is nothing to suggest that this expectation was challenged or queried by Touche Ross
A meeting then took place at CIN's offices on 15th August. The meeting was attended by Mr Burgess, the claimants, Mr Smith, Mr Geminder and Messrs McIsaac and Morris from Touche Ross. The meeting was successful, in that the claimants, CIN, and Mr Geminder remained happy for the proposed transaction to proceed, and Mr McIsaac and Mr Morris were ready to prepare a report on the Admiral Group, once properly instructed to do so.
However, at this meeting of 15th August, Mr McIsaac asked Mr Geminder a number of questions, which, because of the nature of the questions or the way in which they were asked, appeared to cause a degree of offence to Mr Geminder. He mentioned that fact to John, who passed it on to Mr Burgess, and asked him to have a "quiet word" with Mr McIsaac about his handling of Mr Geminder. In this connection, I should mention that, in evidence John said that he recalled Mr McIsaac saying that he did not trust Mr Geminder and Peter says that John passed that on to him. Mr McIsaac did not recall saying this, although he did say that Mr Geminder struck him as "cagey".
Following the meeting of 15th August, Mr Burgess prepared a draft letter of instruction for Touche Ross, which he sent to Mr McIsaac for his consideration. Mr McIsaac made fairly substantial amendments to the draft letter and then sent it back to Mr Burgess. Mr McIsaac's proposed amendments were adopted virtually in their entirety by Mr Burgess. He had the letter retyped and sent back to Touche Ross marked for the attention of Mr McIsaac, on 18th August. This letter ("the instruction letter") began by requesting Touche Ross:
[To] carry out an investigation into the financial affairs of [the] Admiral [Group] ("the Group") on our behalf in connection with the investment which we are considering making. The terms of the proposed investment are set out in our offer letter, a copy of which has been provided."
The letter then went on to identify twelve "areas on which we wish you to report". They included the following:
(a) …the most appropriate way of purchasing the UK trading company and world-wide control of the Admiral trademark, bearing in mind the tax consequences to the new company ("new Co.")…and [the claimants]";
(b) review and comment on the audited financial results of the group since incorporation after 31 December 1985, and the results disclosed by the management accounts for the six months ended 30 June 1986. This review is not to be regarded as being equivalent to an Accountant's Report for a prospectus purposes but rather as being a view of the financial accounts to confirm, or otherwise, the consistent application of acceptable accounting principles. The review of the management accounts, in particular, should be extensive enough to enable you to give us comfort that the profit for the period is not materially mis-stated";
(c) review and comment on the incoming directors' profit and cash flow forecast for the next five years, list the underlying assumptions on which they are based and comment on the group's forecast cash position in relation to its available facilities. In the course of this review we would expect you to:
1) summarise the profit and cash flow forecast for the group and list the principle assumptions on which they are based for each of the five years to 30 September 1991.
2) Review and comment on the proposed capital structure of the company with particular emphasis on the cash generation required to pay the loan.
3) Comment where the principal assumptions, underlying the projections appear to be unreasonable or differ from past experiences, or common knowledge.
4) Comment upon any areas of sensitivity which you consider appropriate and prepare a sensitivity analysis to ascertain the effect on the forecast.
We would expect to place a higher degree of liability on the forecast for the year 30th September 1987 than on those for subsequent years;
(d) comment on the adequacy and reliability of the accounting and management information systems of the group, assess the adequacy of the financial information produced and highlight any weaknesses in internal control procedures
(e) comment on the Group's tax position….
(f) Review and comment on the procedures for establishing bad debt provisions and whether the provision for bad debts as at 30th June 1986 was adequate;
(g) Review and comment on the method used for valuing stock, including the methods adopted in identifying and writing down obsolete or obsolescence. You should review and comment upon the procedures for controlling stock, including physical stock counts;
(h) Comment on any other factors which might materially affect the group's prospects and on any other matters which you might consider relevant in the context of the current proposal."
The instruction letter further stipulated that Touche Ross's final Report was required by 19th September 1996 but that their "initial reactions would be appreciated as soon as possible". The letter also stated that "a separate report on (a) above [was required] within a week". Touche Ross were also informed that Mr Geminder had authorised them to contact the Admiral Group's auditors. The instruction letter ended:
"You should address your report to the directors of CIN, [the claimants] and the group's prospective buyers (to be notified) (but the cost of your work is to be borne by the new Co. or in the event of non payment by new Co. by [the claimants]."
The instruction letter ended with the names of, and purported to be written by, Mr Burgess and each of the claimants, but it appears that only Mr Burgess signed it.
On 19th August Mr Burgess reported back to the investment committee of CIN about the proposed transaction, recording that the maximum cost for the Admiral shares would be £675,000, and that the claimants had "been successfully running two garden centres on behalf of their father … but one centre has now been sold and the other is on the market." Mr Burgess's report went on to set out in some detail the nature of the Admiral Group's business, its performance in the past and its likely performance in the future.
During the week beginning 18th August, Mr Morris, together with some other Touche Ross employees, attended at Mr Geminder's offices in Watford. He was surprised to discover that Mr Richard Pinion, the accountant employed by Mr Geminder, had been given two weeks holiday. However, it appears clear that, in addition to looking at documents and records, a representative of Touche Ross was able to talk to Mr Paul Taiano, a partner in the firm of Nyman Libson Paul, the auditors to the Admiral Group.
The person who seems to have been most concerned with carrying out the investigation into Admiral and the group generally for Touche Ross was a Mr Brookes, who I was told was an experienced and reliable person, who has now retired. Mr Brookes appears to have made detailed notes of his investigations and some of his papers have been retained on microfiche by Touche Ross, but it seems clear that some of his notes have not been retained in any form. It appears that Mr Brookes was assisted by other people, including particularly a Mr Jones, who also made detailed notes; again, some, but only some, of his papers have been retained by Touche Ross on microfiche. The papers show at least some of the inquiries and investigations carried out by Touche Ross. In particular, they establish that representatives of Touche Ross attended stock-takes of AISG at the end of August and at the beginning of October.
On 28th August, Mr Burgess wrote to the claimants saying he was "pleased to confirm that, subject to contract, [he had] received internal approval for the investment in Admiral" although this was "subject to the accountants report and certain other minor matters...". He went on to discuss the basis upon which CIN and the claimants would organise their respective shareholdings.
On 1st September, a Mr. Handley Potts of Touche Ross sent to Mr Burgess a "paper showing our initial thoughts on the proposed acquisition of the Admiral companies" at the request of Mr Morris. No copy of this first draft of Touche Ross's Report ("the Report") appears to have survived, but it does seem that there was such a draft, because the only draft of the Report which exists is dated 5th September 1986 and is expressly described on its front sheet as "Second Draft".
In his evidence in chief, Peter said that he visited the Leicester property with Mr Morris on 4th September and spent the day talking to Mr Geminder and various managers, and that they were joined by Mr Burgess of CIN during the afternoon. Peter said that he then went to a public house "on the outskirts of Leicester" with Mr Morris for a drink and asked him whether he had discovered anything so far to indicate that there were problems of a fundamental nature with Admiral such that it would be inappropriate to proceed with the acquisition. Peter stated that Mr Morris "said that he had absolutely no hesitation in concluding that "there are no deal breakers"" and that he was "greatly encouraged by his positive response".
The second draft of the Report ("the draft Report") dated 5th September was sent by Mr Brookes of Touche Ross to Mr Burgess under cover of a letter of 8th September, which pointed out that Sections E and F (dealing with "Acquisition Structure" and "Future Projections" respectively) were omitted from the draft Report as section E was being finalised by a Mr Stanford and Section F was "currently being worked on to reflect the latest opinions of [Peter]". The letter also stated that three copies of the draft Report were awaiting collection "by the representative of [Peter]".
With the exception of Sections E and F, the draft Report was in fact virtually identical to the final Report. The passage from the draft Report which I am about the describe are effectively identical to those of the final Report.
Included as introductory to the draft Report were two letters, one of which was from Touche Ross to the directors of CIN, the claimants and an unnamed bank ("the Touche Ross letter"), and the other which was the letter of instruction. The Touche Ross letter (in draft form at the time) included the following:
"2. This letter is based on discussions we have had at AISG's premises in Watford or Leicester with Mr … Geminder… and with the middle management. We have also discussed the group's affair with Mr P Taiano….
3. None of the information stated in this Report has been verified by us.
5. The principal matters arising from this Report are as follows:
…………..
5.2 …AISP's accounts at 31 December 1985 have yet to be adopted
5.3 …Financial relationships between AISP and Geminder brother companies which need to be amended include the arrangement under which GBS collects AISG's retail trade debts, the cross guarantee is given by MTF and AISG on each other's bank overdrafts and the significant indebtedness will be due on completion by AISG to companies controlled by the Geminder brothers."
(In this connection it should be explained that GBS and MTF were companies owned by Mr Geminder and his brother. GBS was Geminder Brothers Sales Ltd, which did not trade with AISG, but to which AISG's retail trade debts were factored, as, according to the Report "a device to speed the payment of debts". MGF was Martin Geminder (Footwear) Ltd., which, according to Touche Ross, rendered "significant charges to AISG for the provision of the services of staff etc.".)
The draft Touche Ross letter contained:
"There is material doubt about the worth of debts totalling £13,044 due from past customers in Greece.
The past trading record of AISG is difficult to interpret due to the various changes which have been made to the business and trading policies of the company and to the consequences of inflated charges by MGF for services provided.
The underlying systems of the company are adequate but it lacks any form of management accounting.
...
5.6 …We recommend that a new form of UK trading company should purchase AISG and ALSAG but not AISP which is a non trading holding company."
In relation to AISG, the draft Report stated:
"1.3 It appears to be necessary for a revised set of unaudited accounts to be produced at 30 June 1986 reflecting the final adjustments from 1985, which can then be the subject of warranties by the Geminder brothers."
Later, under the respective headings of "Valuation" and "Obsolescence", one finds this:
"4.5 Normal stocks are valued at the lower of cost and net realisable value. Cost is the original invoice price. Net realisable value tends not to be a problem due to the high profit margins achieved. ……
4.6 Obsolescence is also not a problem as the same product continued as part of the range year in year out. Furthermore AISG placed orders to meet orders coming in and therefore the risk of incurring redundant stock is reduced."
Under the heading "Stock Levels" there is this:
"Stock levels of textiles and fabrics have been increased this year as last year AISG had to refuse orders, due to not having sufficient stocks."
Under the heading "Sales and Gross Margins", Touche Ross explained that AISG "does not prepare an analysis of its trading results between the three sales activities undertaken although an analysis of sales is available". They set out a summary, based on estimates provided to them by Mr Geminder, which showed the sales divided between the three activities, namely "multiples-footwear", "retail-textiles" and "exports-all products" for the period 3rd September 1982 to 31st December 1983, the years to 31st December 1984, and 1985, and the six months to 30th June 1986. Touche Ross recorded the estimated gross margin, as 18% on multiple sales, 60% on retail sales and 45% on export sales, although considerably lower margins appear to have been enjoyed during the first period, that is to 31st December 1983.
When dealing with "Trade Creditors" in part 6.3 of the draft Report, Touche Ross explained that suppliers statements were "not currently available to AISG" and that, accordingly, Touche Ross were "unable to independently substantiate" the balances that were set out.
In paragraph 8.1 of the draft Report, Touche Ross stated that Mr Geminder had "made no forecast of the profits for the second half of 1986" but that he had "provided us with the following informal forecast of the sales for the year 1986". This recorded an informal forecast for sales for the calendar year 1986 of £1.55m of which £500,000 was attributable to multiples, £700,000 to retail, and £350,000 to exports, compared with the actual figures for the first six months of 1986 of £332,000, £249,000 and £165,000 respectively.
Paragraph 9.4 of the draft Report recorded that:
"There is no formalised monthly management reporting, other than the production of an aged debtors list and an analysis of orders received, by product, with delivery dates."
The draft Report included a summary of the draft balance sheet for the year ending 31 December 1985 and an unaudited summary for the provision as at 30th June 1986 and a summary of "past trading results", "overhead costs" for the periods 3rd September 1982 to 31st December 1983, the calendar year 1984/85, and the 6 months to June 1986. There was also a breakdown of the monthly trend of sales from January 1985 to June 1986 broken down as between multiple, retail and expert.
Touche Ross also recorded in the draft Report:
"Mr…Geminder has told us that while the gross profit percentage on footwear is known to be between 20 and 25% on costs (say 18% on selling price) the gross profit percentage achieved on retail is much more difficult to predict. Although a minimum margin of 70% on cost (41% on sales) is specified by Mr Geminder…, this appears to be significantly improved upon due to the high margins obtained by fixing the selling prices of individual products at the levels the market will bear, the effect of the settlement discounts from suppliers, savings on buying and production etc."
Under "Overhead Costs", Touche Ross explained that there had been "substantial overcharging by MGF for services provided to AISG in order to use up tax losses in MGF, which is what they were apparently told by Mr Geminder and Mr Taiano.
When dealing with "Review of Systems" the draft Report said:
"9.2 At present the cash book, wages or stock records are prepared manually, the purchase ledger and nominal ledger is run on a Commodore computer, and the sales ledger and sales invoicing on a new Minstrel computer. The two computers and all accounting records are located in Watford. The Minstrel is linked by a terminal to Leicester.
9.3 The Minstrel is not yet fully operational. System defects are currently being eliminated. The present accounting arrangements are therefore cumbersome and inefficient."
Peter said that the claimants visited Touche Ross's offices on 11th and 12th September "to go through some of the projections", which, he said, "were discussed in detail with [Mr] McIsaac". As is clear from various hand-written documents produced from Touche Ross's microfiche record, it seems clear that Touche Ross personnel (and in particular Mr Brookes and Mr Jones) were continuing to carry out investigations into the Admiral Group. Further, notes of meetings indicate that other people at Touche Ross were considering the position with regard to intellectual property rights and taxation. In addition, a professional valuation of the Leicester property was sought, and was provided on 12th September in the sum of £125,000.
An internal Touche Ross note from Mr Potter to Mr Brookes dated 15th September records a conversation between Mr Potter and John at which Mr Potter raised "the significant sales reduction in 1986" which Mr Geminder explained as having "been orchestrated in order to [the word is missing] the Swiss company and allow him to effect a cheaper acquisition." The note continues:
"I asked John whether in his discussion he was satisfied that this appeared to be a reasonable explanation in the circumstances and was not merely a cover-up for a fast fading business. John confirmed that in his view the explanation was reasonable and he believed such an action is very appropriate for someone whom he sees as a fairly diverse individual."
The note also refers to "a number of "debits" floating around in our Report which could eventually hit the p & l" including "the deficit on the Swiss company". In the note Mr Potter recorded that he "mentioned to John that we would be pulling all these pieces together in one section in the front of the Report to clearly identify those areas affected, although in some instances quantification was not possible at this stage".
Meanwhile, the claimants had instructed solicitors, Durrant Piesse ("Durrants"), and Mr Sparks of that firm started drafting an acquisition agreement, whereby a new company, to be called Fortbrave Ltd. ("Fortbrave"), was to purchase the Admiral shares from Mr Geminder. The terms of the draft agreement were, so far as the purchasers were concerned, discussed principally between Mr Burgess and his assistants on behalf of CIN (and, at least to an extent, on behalf of the claimants) and Mr Sparks.
On 18th September, the Report was produced by Touche Ross. The Touche Ross letter which accompanied the Report was in very similar terms to the draft, save that it was not addressed to a bank, and the doubts expressed about the £13,044 in relation to two customers in Greece was extended to two further items, £22,387 in respect of "Admiral Denmark" and £8,611 in respect of "credit notes not provided".
The Report produced on 18th September included Sections E and F, previously missing from the draft Report. In the introduction to Section F, Touche Ross wrote:
"We understand that the Harrisons produced the original future projection for presentation to interested parties on the basis of discussions held with Mr Geminder concerning the past performance, prospects and potential of the business and with regard to the structure of the company post acquisition."
They explained that they did not believe that Mr Geminder had directly contributed or even seen the projections, which covered five years to 30th September 1991 "and assume an opening balance sheet position which is yet to be determined". Touche Ross also stated that these projections "relate solely to the UK as regards trading and do not take into account royalty income."
Section F of the Report then went on to set out the summarised projections which were described as having been prepared "following discussions with the Harrisons and on the basis of their assumptions". It then set out "summarised illustrative" profit and loss projection and balance sheet projections for the five years ending 30th September 1987 to 1991 inclusive. It explained that the assumptions included in the projections were that sales were "projected to rise at a compound 30% per annum from a base of £2.2m for the year to 30th September 1987", that the increase in retail sales will be greater than that in multiple or export sales, that a sales margin of "around 33% on sales across the board have been assumed", that there had been allowance for what was called "a clear seasonality element" based on previous experiences and certain other assumptions were remarked on, including the average number of debtor days and creditor days.
Under the heading "Review and Commentary", Touche Ross commented on these various assumptions. They then provided a "Sensitivity Analysis" which showed the effect of reducing sales in the first year to £2m or to £1.5m, reducing sales growth to 25% per annum or 20% per annum, and increasing costs of sales (from 67%) to 69% and 74% respectively.
During September, the claimants had been continuing to seek funding from a bank without success. Thus, there is a letter from TSB bank dated 10th September to John which, while indicating that funding may be available, expresses concerns. The claimants visited Barclays Bank on the morning of 22nd September. According to Peter's evidence in chief, both claimants then went to Touche Ross' offices, for a meeting with Mr McIsaac. They then met Mr Morris who had just returned from holiday and they went off to lunch with him in a public house to discuss the Report. Peter said that, on this occasion, Mr Morris "reiterated his view, most strongly, in front of both John and me, that "there are no deal-breakers"". John's evidence in chief was to much the same effect: he said that he "specifically asked Stephen Morris whether there were any reasons why the deal should not proceed and he said without any hesitation "there are no deal-breakers"".
It appears that, at a meeting earlier in September, Mr McIsaac had suggested to the claimants that the price that they had negotiated with Mr Geminder was too high, a view which seems to have accorded with that of some of the Banks approached by the claimants for funding. Accordingly, at a meeting on the evening of 23rd September at Mr Geminder's home, the claimants and Mr Geminder (in the presence of Mr Taiano and Mr Smith) negotiated a price reduction for the acquisition of £200,000. The reason put forward by Peter for this price reduction in his evidence was that "we could not obtain sufficient cover from the bank for working capital; owing to the lending ratios on debtors and stock there would have been insufficient cash available to run the business". This was, I think, principally based on the attitude of BOS, who were not prepared to provide working capital for the Admiral Group in view of the level of the proposed acquisition price. In his evidence, Peter said that Mr Geminder "readily agreed to the price reduction and an arrangement was reached whereby he would be able to claim back £150,000 if [certain] target products were achieved". These revised terms were explained to Mr Bloomfield of CIN orally by Mr McIsaac and by John on 26th September, and in a letter of the same date from Mr McIsaac.
Although other bankers (including Barclays Bank) had rejected the opportunity of providing finance for the proposed venture, the attitude of BOS was more encouraging, particularly following a meeting on 1st October. As a result of this, Peter said that the claimants "were very confident that the banking facilities for the Admiral Group would be provided by the Bank of Scotland". This confidence was justified: on 9th October, BOS sent a formal offer letter "agreeing in principle" to provide term loan and overdraft facilities to Admiral (Newco) Ltd, a company being established to require [AISG and ALSAG]".
However, the claimants still needed to raise money to enable them to provide their contributions towards the purchase price for the company. Various banks they approached were not enthusiastic. After an initial rebuff, the Allied Arab Bank ("AAB") advised them that it would be prepared to make a loan available to each of the claimants, secured on their respective houses, to enable each of them to raise the necessary money.
Meanwhile, Mr Geminder had been pressing the claimants to proceed with the transaction, and managed to persuade them to enter into a written agreement with him at his home on the evening of 7th October whereby the claimants agreed to indemnify Mr Geminder in respect of all his costs in the event of the transaction not being completed by 7th November ("the October indemnity"). The evidence established to my satisfaction that at this meeting of 7th October the claimants deliberately misled Mr Geminder into believing that they had raised finance for the acquisition, whereas this was not in fact true (although it became true, as it were, later). The October indemnity was entered into by the claimants without the advice, indeed without the knowledge, of their then-solicitor, Mr Sparks. Subsequently, by the end of October it had become apparent that the transaction could not be completed by 7th November, and the indemnity was re-negotiated so that it only took effect if the transaction was not completed by 14th November: this was recorded in an amended version of the October indemnity, entered into on 30th October.
By 14th November, the parties were very close to exchange of contracts, indeed to completion, for the acquisition, given that the necessary funding for the company (through BOS) and for the claimants (through AAB) had been obtained. However, it was clear that contracts would not be exchanged, let alone the transaction completed, on 14th November. According to the claimants, they had a meeting with Mr Geminder at which they made it clear that, unless he agreed to release them from the October indemnity, they would pull out of the whole transaction. In other words, at least according to the claimants, they left Mr Geminder with the option of insisting on the October indemnity, in which case the acquisition would not proceed, or releasing them from the October indemnity, in which case they proposed to proceed with the transaction. Their case is that, after some discussion and negotiations, Mr Geminder eventually agreed to release the claimants from the October indemnity.
Contracts were exchanged between Mr Geminder and Fortbrave on 16th November, with completion taking place the following day. The transaction was so structured that the subject matter of the sale contract was the 95% of the issued share capital of a company called Seldline Ltd ("Seldline") for £650,000 (which was payable partly by way of cash, partly by loan notes and partly by shares). It should be explained that 95% and 5% of the shares in Seldline were respectively owned by Mr Geminder and Mr Anton de Vries (who owned 51% of ALSAG), and that Seldline owned 100% of AISG and of AISP, and 49% of ALSAG. Clause 5 of, and paragraph 2 of the fourth schedule to, the Agreement of 16th November ("the Sale Agreement") contained a very substantial number of warranties (73 paragraphs, some of which were divided into sub-paragraphs, and which ran to over 13 pages of close typing) from Mr Geminder in favour of Fortbrave ("the warranties"). The effect of the arrangement between CIN and the claimants was that the claimants owed 34% of the Admiral shares (indirectly through their shareholding of Fortbrave) but the claimants' rights under these shares were to an extent subordinated to those of CIN under their shares in Fortbrave.
On the date of completion, of the Sale Agreement, 17th March 1986, Fortbrave entered into separate service agreements with the claimants, each of whom was to receive £60,000 a year. On the same day, Fortbrave entered into an agreement with GBS which involved GBS agreeing to make Mr Geminder available to provide services to Fortbrave for £7,500 a year. By a separate agreement, also dated 16th November, Fortbrave agreed to acquire the Leicester property from GBS for £100,000, with completion due to take place the following day.
Immediately after completion had taken place on 17th November, the claimants say that, for the first time, they had the opportunity to inspect the books, records and papers of the Admiral Group, because, until completion had occurred, Mr Geminder had refused them access to those documents, insisting that access be restricted to Touche Ross.
During the following week, the claimants inspected the records of the Admiral Group, in Watford and Leicester, and they interviewed the staff employed by AISG. According to John, as early as 20th November, the claimants had reached the provisional view that "the company was in a dire state" and that they "were finding the group was not what we had been expecting". By 24th November, John was sufficiently depressed to express the view that the Admiral Group was "bust". On the evening of 24th November, the claimants say that they telephoned Mr Burgess, who was "horrified" but indicated that CIN would do what they could.
Mr Burgess evidently contacted Mr McIsaac, who wrote to Mr Burgess recording CIN's instructions to Touche Ross as he understood them to be. Mr McIsaac's letter of 12th December stated that CIN required a review ("the Review") of the Admiral Group's "asset position for any evidence of overstatement of assets warranted in the purchase agreement", as well as an assessment of "the present financial viability of the group", "a review of management's revised financial projections" and "an indication of the current cash requirements". The letter recorded the fact that the Review was required by 23rd December, and that Mr McIsaac understood that CIN was "at present inclined to support the company with additional funds (subject to the group having satisfactory prospects and reaching agreement on the basis of funding)".
Touche Ross then started their further investigations, which culminated in the Review entitled "Post Acquisition Review" of which an initial draft was provided to CIN (but not the claimants) sometime in December.
Meanwhile, during the last few months of 1986, things had not stood still at Jackmans. During September a new manager for Woking had been sought. A Mr Charles Phillips was offered the job by a letter dated 19th September, at a commencing salary of £16,000 per annum, plus a sum of money equal to 10% of his salary payable into a life assurance and superannuation scheme; he also had the use of a Ford Escort motor car. On 31st December, Sir Ernest Harrison sold Codicote to Country Gardens Plc.
The events of 1987 and 1988
During the early part of 1987, Touche Ross prepared further drafts of the Review, which were also supplied only to CIN. Eventually, the Review was finalised by Touche Ross and sent under cover of a letter dated 6th March 1987 to the directors of CIN and to the claimants. The covering letter explained that the Review considered, among other things, "possible claims against Mr R. Geminder" and stated that "the potential warranty claim is currently estimated at £135,000 and there is a further possible claim ….of approximately £25,000". The letter went on to say that:
"The projections indicate that a cash requirement of the order of £200,000 is needed in order to remain within the existing bank facility through to the Autumn selling season, when stock and debtors further increase the working capital requirement of the business. ……
A further £150,000 working capital facility would also be required in September and October 1987 in order to finance debtors and stock on the basis of assumptions underlying the projections during the Autumn selling season, unless [the claimants] were able to improve upon debtor collection periods, stock level control and planning or negotiating extended creditor payment facilities with suppliers."
The Review differed in some ways from the Report. For instance, under the heading "Customers, Suppliers and the Market", the Review suggested that "average margins on sales of 40% are sought [from retailers]", that on "export sales, margins of around 29% are sought" and that, with respect to multiples "margins of 25% are sought". The Review emphasised the need "to have accurate and timely detailed information" and stated that the claimants were aware of this and "are currently in the process of developing such management reporting systems."
In relation to "Principal Assumptions: Sales Value and Growth" the Review stated that:
"[the claimants] see the business as currently being a year behind their original projections due to the poor and unexpected sales performance for the year to 31 December 1986 and lower than expected net assets and order book positions. However, they remain confident of attaining the same levels of growth in coming years as previously anticipated."
The Review went on to set out the likely financial position on the basis that total sales of £1.8m were achieved for the year to 31st December 1987 and £2.5m for 1988 (to be compared with £1.23m achieved for the year to 31st December 1987). The Review then went on to carry out a similar sensitivity analysis to that contained in the Report.
The main body of the Review ended with a section headed "Viability". This concluded that the claimants needed to become more involved in sales, marketing and production, that they needed to establish a detailed plan of strategy for developing the business, that they needed to develop the management information systems and operational control, that they should consider a cost cutting programme and that they should be devoting attention to planning for the Autumn selling season.
It appears from the evidence of the claimants that, when carrying out their investigations for the purpose of compiling the Review, Touche Ross personnel "spent a lot of time finding out from [the claimants] what the company's position was". CIN concluded that the picture painted by the Review was sufficiently encouraging to justify injecting a further £150,000 into the Admiral Group. At the same time, consideration was being given to making a substantial claim against Mr Geminder based on the warranties,.
On 3rd April 1987, Mr Burgess recommended to CIN that it invest a further £100,000 in the Admiral Group on the basis that, although the trading performance for the first three months looked as if it was going to fall well short of what had been anticipated, "the directors have recently taken several steps to improve trading" and "the company's bankers (Bank of Scotland) have confirmed ……their willingness to maintain the current facilities and to consider extending facilities whenever there is sufficient security". Mr Burgess concluded that "significant steps have been taken which should bring the group into profit at an early stage and enable the major problems of the recent past to be overcome." His recommendation was accepted, and £100,000 was duly divested into the Admiral Group by CIN.
Meanwhile, the claimants, like CIN, were not only considering the possibility of maintaining a claim against Mr Geminder on the warranties, but were also considering whether they had a claim against Touche Ross. John approached Robson Rhodes, who had already been asked whether they would be prepared to act as auditors to the Admiral Group. In a letter dated 22nd May 1987, Mr Smith of Robson Rhodes considered the possibility both of a claim against Mr Geminder, and against Touche Ross. His initial view, expressed in a little detail, was that there may well be a claim against Touche Ross, but he drew attention to the "substantial disclaimers in the opening paragraphs of the covering letter" and he also made it clear that he had not seen the instruction letter.
On 27th May 1987, Mr Burgess prepared a further note for consideration by CIN. This note emphasised that the trading performance for the first five months looked as if it was going to fall even shorter of the budget figure than previously thought, but that there were a number of reasons for taking a somewhat more optimistic view (including the signing of three association football clubs who would be using the Admiral mark). He recommended a further injection of £100,000 on the basis that:
"Results to date are disappointing but given the strong order book and very recent improvement of the production and delivery timing, there is a firm expectation that the company will be able to trade out of its present difficulties."
By the beginning of June 1987, it had been made clear to Mr Geminder that the claimants and, indeed, CIN, were considering issuing proceedings in the name of Fortbrave on the basis of breach of the warranties, which he had given. He wrote a letter on 3rd June 1987 to Peter, relying on the October indemnity, and seeking recovery of his costs, in connection with the Agreement, which he put at around £40,000. It is also clear from a letter of 8th June 1987 that Mr Geminder was prepared to discuss settling the claims by and against him. A formal letter before action was written by solicitors instructed by the claimants on behalf of Fortbrave, on 6th July 1987, to which Mr Geminder's solicitors replied in considerable detail, their letter running to over 20 pages.
During July 1987, Touche Ross were asked to resign as auditors of the Admiral Group, and were replaced by Robson Rhodes. However, it appears that the relationship between the claimants and Touche Ross was not unfriendly. In their resignation letter, Touche Ross indicated that they would be happy to give the claimants, and indeed the Admiral Group, any assistance which was requested, and on 11th August 1987, John wrote to Mr McIsaac thanking him for his "co-operation regarding the stock-take file – it is much appreciated". He also referred to "arrang[ing] a meeting during September to discuss the unresolved problems". Such a meeting apparently took place on 23rd September 1987 and was described by Mr McIsaac in a letter to the claimants on the same day as giving rise to a "very full and frank [discussion] (as politicians put it)". Mr McIsaac said this:
"As I mentioned, I think the problem has been that there was a misunderstanding between us as to the role which we fulfilled in the transaction. Clearly we interpreted our instructions far more narrowly than you did which is, of course, in retrospect, a great pity. I do not think it would be particularly helpful to go through the various issues here since these were for the most part covered at our meeting."
The letter then went on to make the point that Touche Ross were owed over £40,000 for the work done on the Report and the Review.
In discussions around the beginning of 1987, Touche Ross had indicated that they would be charging £29,000 for the Report. There was then a telephone conversation between Mr Burgess and a Mr Herron of Touche Ross, when Mr Herron offered to reduce Touche Ross's bill to £25,000. When informed of this, John is recorded as having said that this was still an unjustifiably high sum. There were further negotiations in October and November 1987 when Touche Ross offered to reduce their fee to £20,000.
On 2nd October 1987, Robson Rhodes produced a draft audit report in respect of AISG. This draft recorded that:
"An extraordinary charge has been made in the profit and loss account to adjust the net assets and acquisition of the company by Fortbrave….to the fair value as assessed by the current directors… The charge amounts to £141,229. We were appointed auditors on 31 July 1997. Consequently, we have been unable to satisfy ourselves as to the extent that the Charge relates to the year ended 31 December 1986 or to the previous year or the extent that the charge relates to matters not arising in the ordinary course of the companies business."
The draft accounts accompanied by this letter showed:
"Obsolete stock written off £74,774.00
Bad debts written off £26,961.00
Purchase ledger – irrecoverable debit
Balances £26,954.00"
There were two smaller items which brought the total to the sum of £141,229.
Meanwhile, the affairs of the Admiral Group were not going as well as Mr Burgess's memoranda had anticipated, or at least hoped. Eventually, BOS appointed a Mr W. Roberts and Mr G Baker of Ernst & Winney ("the receivers") as joint receivers of Fortbrave and of AISG on 2nd February 1988. Their Report recorded that AISP was a dormant company, that AISG "is engaged in the distribution of sports and leisure ware bearing the trade name "Admiral" and has a licence from ALSAG for the UK and Irish rights to the trade name." It explained AISG's role as being the purchaser of finished garments which it sells to small retailers. The receivers went on to explain that their "initial review of AISG indicates that we should endeavour to continue trading whilst we seek a buyer for the assets and undertaking on a going concern basis."
A note of 16th February 1988 from Mr Burgess for his file records this:
"Since early November, the [Admiral] Group have been planning a fund-raising exercise and capital reorganisation. This would have evolved in directors investing £100,000, a private individual £100,000 and CIN £50,000.
The terms of the investment had been agreed and first draft legals had been drawn up – although the legal position was somewhat uncertain due to the litigation against the vendor (Geminder) who retained 10% of the share stake.
At the board meeting on 27th January the executive directors [sc. the claimants] stated that they had lost confidence in the projections for 1998 because of the failure to sign up sufficient soccer club kit promotion deals. ……They then confirmed that they would not be willing to invest their own money in the company and could not advise CIN or the new investor to go ahead. …..
The board then considered whether a sale of the business was possible, however it was decided that the business was too fragile and any "for sale" sign could upset creditors. The only alternative was to approach CIN and the Bank of Scotland to request a receiver be appointed (advice taken indicated Administration was not appropriate). ….
Receivers were appointed on 4th February.
The receivers have had an "extraordinary level of interest in the business and have sent out over 500 sets of particulars. They are optimistic about selling the business in the next few weeks but cannot yet give CIN any indication of the likely recoveries."
On 10th March 1988, the receivers wrote to CIN setting out the preliminary results of their marketing. This showed, they said, that the Admiral Group's business ("the business") or the shares in Fortbrave would be likely to be sold for such a price as would enable BOS to be "fully repaid under its first priority" and that it was estimated "there will be £378,487 subject to [certain] provisions, available to meet the secured indebtedness of the companies [Fortbrave, Admiral and Seldline] to CIN…". The letter then went on to explain that, despite the "extraordinary" interest previously referred to, only two offers had been received.
By the end of March 1988, a company called Warwick Industries, effectively owned by the Gibney family, had agreed to pay off sums due to BOS and to pay CIN a substantial sum for its interest in Fortbrave. Initially, it was proposed that Peter should stay on, but this intention was subsequently abandoned, apparently because one of the football clubs which it was hoped could be persuaded to wear the Admiral strip, was not happy about Peter remaining involved. In a note prepared by an accountant, Mr Thackrar, it is recorded that Warwick Industries had "decided to award [Peter] £50,000 in cash, [a certain] trademark for the exclusive exploitation by [Peter and the] benefit of the litigation [against Mr Geminder on his warranties] for [Peter] to pursue as he thinks fit…."
Mr Thackrar then went on to consider in the note the taxation consequences. Peter took advice from Robson Rhodes about this proposal, and it was explained to him that any benefit he might be given could be treated as a termination payment and would therefore be liable for tax (with the exception of the first £30,000). Draft heads of agreement were prepared for Peter and Fortbrave (which had changed its name to Silentstar Ltd) whereby Peter's employment would terminate, and a payment will be made to him an arrangement made about litigation against Mr Geminder. Terms were eventually agreed whereby Peter was awarded £30,000 for loss of office and half the net sums recovered from Mr Geminder on his warranties.
Following this disappointing outcome of the whole venture, Peter took time off in 1988 to write a novel ("the Novel") which is still in manuscript form. It is really the story of the claimants' involvement in the Admiral Group from start to finish, albeit that it is, to an extent, fictional. In October 1988, Peter obtained employment in this country with a company called Graydon UK Ltd ("Graydon"). John decided to go to Australia, where he went in April 1988 and where he still lives. He returned to this country to give evidence in these proceedings. Accordingly, Peter has been the individual from whom instructions have been taken, although he has obviously been in contact with John.
The course of earlier litigation
Meanwhile there were three sets of proceedings involving Mr Geminder and his companies. The first was Fortbrave's claim against Mr Geminder on the warranties; the second a claim by GBS against Fortbrave arising out of the contract between them of 17th November 1986; the third was Mr Geminder's claim against the claimants based on the October indemnity. A letter of 6th July 1990 from the claimants' then solicitors Harvey Ingram, to Mr Geminder's solicitors records terms of settlement whereby Mr Geminder agreed to pay £50,000 to Fortbrave to settle the claim based on the alleged breach of the warranties, there would be no order in GBS's action, and the claimants were to pay Mr Geminder £18,856.65 in respect of the October indemnity. Peter was entitled to half of the proceeds of Fortbrave's warranty action by virtue of his agreement with Warwick Industries.
The claimants took the view that Durrants had been in breach of their duty in not ensuring that Mr Geminder's agreement to release them from the October indemnity was confirmed in writing by Mr Geminder, as a result of which Mr Geminder was able to deny that he had ever agreed to release them, and that this caused them loss in that they had to agree to pay Mr Geminder £18,856.65. Accordingly, they instructed solicitors, Harvey Ingram, who took advice from counsel, who settled the statement of claim against Durrants, on the claimants behalf on 5th December 1991. Harvey Ingram prepared a specially endorsed writ in January 1991, but for the time being it was not issued or served on Durrants, primarily, it would appear, because the claimants were seeking legal aid, a topic to which I must return in more detail. After discussions between Harvey Ingram and Durrants' solicitors, Harvey Ingram issued the writ against Durrants on 28th August 1992. On 9th October 1992, Mr Saul of Harvey Ingram wrote to Peter, who had by then decided to instruct the defendants in connection with his (and indeed John's) affairs. Mr Saul wrote that Harvey Ingram would collect files in connection with the potential claim against Durrants, and stated that "the position is far from straightforward bearing in mind that legal aid had been refused". Mr Saul emphasised that the writ had to be served on Durrants within 4 months of its service, and he therefore "suggest[ed] that the writ is certainly served before 25th December next and possibly even earlier". Despite the fact that Peter was changing solicitors, Mr Saul's letter and, indeed, Peter's letter in reply, were both friendly.
The claimants had decided to change solicitors as a result of a discussion between Peter and a friend of his, Mr Terry Bircham, who is and was a costs draftsman. Mr Bircham said in evidence that, from about late 1990, Peter had talked to him about the advice given by Touche Ross, and had even provided him with a copy of the Report. Peter had discussed the possibility of suing Touche Ross with Mr Saul from time to time, but nothing had come of it. Mr Bircham said that he had suggested to Peter that the claimants should reconsider the question of suing Touche Ross, and that he introduced Peter to the defendants, for whom he had carried out work and by whom he was impressed, in the middle of 1991. Mr Christopher Camillin was the partner of the defendants to whom Mr Bircham introduced Peter, and Peter was favourably impressed by him. The claimants' decision to switch solicitors resulted from that. Mr Camillin's evidence was that the meeting took place a little earlier in 1991, namely on 20th March. His recollection is supported by the defendants' records, and I think that his recollection is to be preferred. By the end of August 1991, Peter had provided Mr Camillin with certain documents, including the Report, the Review, and a copy of the Novel. Mr Camillin said in evidence that Peter told him that the Novel included accurate facts, embellishments of facts, and that some parts were "plain fiction" but he understood from Peter that, at least in the main, the Novel was accurate. Both parties have proceeded on that basis in these proceedings, although the defendants have suggested in cross examination of Peter, and in argument, that certain details of the Novel are accurate, whereas Peter has said that they are fiction.
Mr Camillin told me, and there is no reason to doubt, that he and Peter discussed various matters from time to time before the issue of the writ in these proceedings, and in particular they discussed "the deficiencies of the work that Touche Ross did" as well as "Peter's concern that there was a real risk that a claim against Touche Ross would precipitate a claim for their fees which might leave [the claimants] worse off".
Around the end of August 1991, Mr Camillin provided Peter with forms of application for legal aid, and on 16th October 1991 he sent him photocopies of relevant pages from the legal aid handbook. On 26th November 1991, Peter returned the legal aid application forms duly filled in both by him and John. In his covering letter, Peter expressed doubts as to whether he would obtain legal aid. The application was rejected by the Legal Aid Board ("the Board") who explained in a letter of 30th January 1992 that it was inappropriate to grant legal aid in the absence of any previous attempt to settle the claim. When Mr Camillin sought to appeal this on Peter's behalf, the Board pointed out, in a further letter of 18th March 1992 that the information Peter had given about his family's means showed that he had a disposable income of £33,582 per annum, which was well above the maximum which would qualify for legal aid. In a letter of 22nd April 1992, the Board refused John's application on the grounds that his disclosed disposable income, although much lower at £7,845 per year, was also above the maximum. Meanwhile, it appears that Peter filled in two "financial application forms" for the Board on 10th June 1992. I presume that one was prepared in respect of the proceedings against Durrants, and the other in connection with the action. Once again, Peter's applications for legal aid were refused.
Despite the fact that neither of the claimants had obtained legal aid, the defendants issued the writ on 8th July 1992, and advised the claimants, through Peter, that the writ would have to be served within four months, if the claim was not to become statute-barred.
Meanwhile, John made a further application for legal aid on 24th September 1992, because he had been made redundant from his job in Australia. This required Mr Camillin to fill in a form, which he did on 1st October 1992. This involved him answering the question:
"Based on your existing knowledge of the case, which of the following best describes the prospect of a successful outcome?"
Mr Camillin's answer put the case in the highest category of "Very Good" (80% plus)". In answer to the request "Please provide the value of the claim being made by …the applicant" he answered "£100,000+". John was granted emergency legal aid to pursue Durrants and to pursue the action on 21st October 1992.
Meanwhile, Peter made a further application for legal aid on 15th October 1992. This application was accompanied by a statement signed by Mr Camillin which was effectively identical to that which had accompanied John's earlier application, and in particular Mr Camillin repeated his assessment of the prospects of success and the value of the claim that he had stated in John's earlier application.
According to Mr Camillin he tried to telephone Peter on a number of occasions during the first week in November 1992 because the period for serving the writ was about to expire, and Peter did not return his calls. On 4th November 1992, Mr Camillin wrote to Peter saying that his application for emergency legal aid had been refused, although his main application had been approved "subject to means". In his letter, Mr Camillin warned Peter that, if the writ in the action was not served by 4 p.m. on 6th November 1992, the claim would be defeated. Two hours before the deadline of 4 p.m. on 6th November 1992, Peter telephoned him and instructed him to serve the writ. Mr Camillin said that Peter had told him in this telephone conversation that he had just learnt that the Board had accepted that his disposable income was such that he qualified for legal aid. I see no reason not to accept Mr Camillin's evidence on this.
Mr Camillin then arranged for service of the writ to take place that day, but unfortunately service was not effected properly.
On the same day, 6th November 1992, John obtained full legal aid for the action (albeit only up to a certain stage in the normal way). On 9th November 1992, John was granted legal aid to continue the claim against Durrants. On about 18th November 1992, Peter learnt that he had obtained legal aid to pursue the claim against Durrants, subject to obtaining an opinion on merits in quantum. A week later, Mr Camillin wrote to the Board asking them whether they still needed to proceed with assessing Peter's eligibility for legal aid in connection with the action, given that he had been granted legal aid in connection with the claim against Durrants. The Board said that they wanted full details of Peter's financial circumstances, and Peter provided these on 21st December 1992. It appears that that form was sent by Peter to Mr Camillin on 23rd December 1992, and it was sent by Mr Camillin to the Board on 28th January 1993.
This resulted in Peter being granted legal aid on 6th February 1993, again in limited form, in these terms:
"Limited to the issue (but not service) of proceedings and thereafter to the preparatory work necessary to prepare instructions to counsel and thereafter the obtaining of counsel's opinion on the merits and quantum."
Apparently this certificate either did not get to Peter or else took some time to get to him, because there is a letter dated 8th February 1993 from him to Mr Camillin enclosing a fresh application for legal aid in connection with the action, and on 19th February Mr Camillin wrote to the Board stating that "at the moment only Mr John Harrison has the benefit of a certificate and we are aware that Mr Peter Harrison is eligible on the basis of his means...". The apparent confusion appears to have been attributable to what is mentioned in the third paragraph of that letter, where it is recorded that Mr Camillin had been told that the Board had "mislaid the entire file in this matter". Accordingly, it appears that Peter re-submitted the application which had been submitted on 8th January 1993: this application was rejected by the Board on 12th March 1993 on the grounds that his disposable income was nearly £10,000 according to their calculations. However, following a telephone conversation between Peter and representatives of the Board on 21st May 1993, he was granted legal aid on 6th July 1993 "limited to all steps up to but excluding setting down but including obtaining counsel's opinion on merits and quantum in evidence at that stage", albeit that the certificate was limited to expenditure of £7,500. That sum was subsequently increased to £25,000 by a further certificate dated 7th December 1993.
Meanwhile Touche Ross challenged the effectiveness of the service of the writ and they issued summons on 23rd December 1992 to dismiss the action: a week earlier the defendants had issued an application to extend time for service of the writ. On 1st November 1993, His Honour Judge Rich QC refused to extend time for service, but waived the irregularity. However, on 30th January 1995, the Court of Appeal allowed Touche Ross's appeal and dismissed the action. On 6th July 1995 the House of Lords dismissed the claimant's petition for leave to appeal. (Shortly before this, the action against Durrants had been settled on the basis that Durrants paid £15,000 to the claimants).
Despite the challenge to the service of the writ, the Harrisons had taken various steps in connection with the action, with the benefit of legal aid. They obtained a preliminary opinion from a firm of accountants, BDO Binder Hamlyn ("BDO"), that the Report was defective on 24th February 1993; they served a statement of claim in the action on 2nd July 1993; they sought the views of counsel who told them in writing that he considered that they had a "good prospect" of success in the action on 30th November 1993. On 1st December 1993, the defendants informed the Board that their assessment of the prospects of success was "good (60-80%)". The defendants also arranged for the claimants to prepare witness statements.
These proceedings were issued on 31st January 1997.
Assuming that the writ had been validly served on 8th November 1992, when would the action have been heard? The claimants contend that the likely hearing date was around the end of 1995, whereas the defendants suggest some time in 1998.
For the defendants, Miss Angharad Start relies on the evidence given to Lord Woolf: see p366 of Annex III to the Final Report on Access to Justice, July 1996, which contains a summary of the course of 2,184 professional negligence cases. Bearing in mind that, at least on the claimants' case, the action would have involved legally aided claimants (which the evidence suggests would add to the delay), and as the action would have been comparatively complex, she says that this evidence suggests a date in 1998 is a realistic likely date for the action.
Mr Adrian Salter, for the claimants, points out that the present case, which involves the same facts and issues as the action would have done, plus some further facts and issues, will have taken less than 23/4 years from issue of the writ (31st January 1997) to judgment.
It is obviously difficult for me to assess the likely hearing day with precision but that is what has to be done for the purpose of assessing damages and interest in the present case. The exercise that is required of me involves so many imponderables that it can fairly said to involve little more than an educated guess.
The statistics relied on by the defendants are striking. However, while such statistical evidence is obviously valuable for the sort of purpose for which it was collected, it is rather dangerous to rely on statistical evidence of this sort for the purpose of arriving at a specific answer in a specific case. The parties to the action, and indeed the court, would have expected the action to be processed quickly bearing in mind the delay between the alleged negligence and the issue of the writ: the claimants would have been well aware of their risk of an application to dismiss for want of prosecution bearing in mind the interim delay. On the other hand, the present proceedings should not be viewed as a wholly satisfactory analogy. The desirability for dealing with cases with despatch was very much more in the forefront of everyone's minds in January 1997 than in November 1992. Further, the delay by January 1997 was already much greater and was itself caused by legal proceedings.
In my judgment, the correct date to take for the notional hearing of the action is in July 1996, and the correct date for notional judgment in the action is 15th October 1996.
In the present case, the claimants contend that, as a result of the admitted failure of the defendants to serve the writ within the relevant limitation period, they lost the opportunity to pursue the action. In those circumstances, the damage the claimants suffered as a result of the defendant's breach of duty was the loss of the opportunity to bring the action to a successful conclusion.
The general approach
A number of different types of claims for damages could be characterised as a claim for loss of a chance or loss of an opportunity, and in many such cases the court may well be able to fall back on the market's assessment of that chance. For instance, if a claimant is deprived of shares in a company through a defendant's wrong-doing, it could be said, particularly if the claimant would have been a long term holder of the shares, that the damage is really the a loss of the opportunity or chance to be paid dividends in the future. Save in the most unusual case, the court would not have to indulge in the exercise of assessing the future profit-earning capacity of the company and its likely future dividend policy: the shares will either have a published market value, or their capital value will be the subject of expert evidence. So too, if a claimant has been deprived, through the defendant's wrong-doing, of a reversion immediately expectant upon the determination of a 50 year lease with 5 year rent reviews: rather than assessing the likely future levels of rent on successive reviews, the court would carry out the exercise of assessing the capital value of the reversionary interest.
Although there will conceivably be exceptions, it seems to me that such an exercise is not appropriate where what a claimant loses is, as here, the opportunity or chance to recover damages from a third party in an action. First, there is no sort of market, and therefore no sensible comparable transactions, in causes of action, unlike in shares or interests in real property. Secondly, it is not, in general, legally permissible to sell a cause of action: although subject to exceptions, the rule against maintenance still stands. Thirdly, each case turns so much on its particular facts and applicable law that it is difficult to see how it would be helpful to value a particular cause of action by reference to a notional or actual market in any event. Fourthly, because the assessment of the prospects of a particular case involves assessing the view that a judge would take (or, perhaps, the course litigants would anticipate the court taking), the court would not normally be assisted by evidence, and would expect to make up is own mind in the light of the facts and argument presented to it. Fifthly, and perhaps slightly tentatively, the valuation of the loss of the opportunity to sue, given that it involves potential proceedings in court, may occasionally involve policy considerations which are absent in most other types of case where a claim is based on loss of opportunity.
Given that the normal approach to valuation is not available in a case such as this, the question which arises is the appropriate method of valuing the loss of opportunity to claim damages in an action. As I see it, one must initially ask whether the claimant would, in fact, have proceeded with the action, had he not been deprived of the right to bring it. After all, one is concerned with the loss which the claimant has suffered, and , for the reasons I have given, this cannot, at least normally, involve a market value exercise: generally it is only the claimant who could have brought the action, and, without his having done so, there would be no opportunity to recover damages. In my judgment, therefore, unless the point is conceded by the defendant in a particular case (and in most cases I suspect that it will be), the first question to be considered is whether the claimant would actually have pursued the action to the point where he would, subject to the court's assessment of the prospects, have recovered something. Applying normal principles, it is for the claimant to satisfy the court that he would have pursued the action to that extent, albeit only on the balance of probabilities. If the claimant fails at that point, that is the end of the matter. If he succeeds, it is necessary to turn to the second question, namely what would have happened if the claimant had pursued the action.
As to this second question, there was a dispute between the parties as to whether (as Mr Salter contends) one can take into account the possibility of a settlement being reached in the action, or whether (as Miss Start argues), one has to assume that the action, which the claimant has lost the opportunity to pursue, would have gone all the way to trial. Unless constrained by authority, I can see no justification, either on legal principle or out of practical considerations, for accepting the latter view: it appears to me to be artificial, unrealistic and to impose an unnecessary constraint on the exercise which the court has to perform. If one is asking oneself what would have happened in a certain action which will not actually proceed, it seems to me that there is no good reason artificially to constrain oneself to a certain assumption which may, in practice, not be realistic. After all, the great majority of professional negligence actions settle, whether during the hearing, just before the hearing, or comparatively early. Further, it is not inconceivable that the potential defendant, could be shown to have anticipated the action being brought, and to have reached a decision to pay a sum, say £100,000, into court to protect its position straight away. If the court is not only satisfied that that would have happened, but that the claimant would have accepted £100,000, it appears to me to be little short of absurd that, instead of awarding the claimants £100,000 (together with interest from the date upon which the payment in would have been likely to have been accepted), the court is obliged to assume that the action would have proceeded all the way to final judgment and to force itself to indulge in the time consuming and costly exercise of considering all the implications of that artificial assumption.
However, it may well be that the dispute between the parties, as to whether or not one is entitled to look at the possibility of the action being settled, may in many cases raise more of a hypothetical issue than a real one. Save in an unusual case, where there is actual evidence as to how the particular case may settle, it seems to me that the exercise the court would carry out, in deciding the likely settlement figure (if it concludes that the action is likely to have settled), is very similar to the exercise of assessing the likely measure of damages which would have been awarded by the court if the claimant had been successful in the action, and then reducing it by an appropriate fraction. After all, while I accept there could be special circumstances in some cases which would render the analogy inexact, there is a close similarity between the figure the parties to an action would have arrived at for the purpose of settling that action and the figure which the court arrives at when applying an appropriate fraction to reflect the uncertainties to the likely measure of damages if the claimant had won. In each case, the exercise ultimately involves assessing what the action is worth.
If the court decides to proceed on the basis that the action would not have been settled, it becomes necessary to assess the likely outcome. However, it is important to emphasise that in such a case the claimant has not lost the right to the damages which the court concludes that he would have recovered, had the action proceeded to trial and been successful: what he has lost is the chance of recovering such damages. Accordingly, once the court is satisfied that the claimant would have proceeded with the action, the court cannot simply treat the case as if it were the action, and decide whether the claimant would succeed or fail, and what the damages should be. Subject to two points, the court should, as I see it, assess the likely level of damages which the claimant would have recovered had the action proceeded to judgment, and then apply an appropriate fraction to that sum to reflect the uncertainties. If such a fraction was not applied, the claimant would obviously be better off than if the defendants had not been in breach of duty. What he lost was the opportunity, with all its uncertainties, of recovering damages in the action, so he should therefore not be awarded damages on the basis that he would have been certain to recover those damages.
I mentioned that this conclusion was subject to two qualifications. The first arises where the claimant's prospects are tolerably clear. Thus, the claimant's prospects of success may be so strong that it would be a denial of justice to apply a fraction to the likely damages that would have been recovered. Alternatively, the claimant's prospects of success may be so slim that it would simply be inappropriate to award anything: the action may have had little more than nuisance value, and the alleged benefit of the action might in fact be regarded by any sensible person as a poisoned chalice. To conclude that, in the one case, it might be inappropriate to have any reduction, and, in the other case, that it would be inappropriate to award any damages, might be said to involve a measure of policy, as well as of assessment. Thus, particularly where there is a very large potential claim indeed, there may be some claimants who might think that a virtually hopeless case may nonetheless have "nuisance value", which would result in the claimants being bought off with a payment, not insignificant in itself, albeit very small compared to the amount potentially at stake. Nonetheless, it may well not be right to ascribe any value to the loss of the chance to bring such an action.
The second qualification to this general rule is that it may be that the court would not think it right to assess the likely level of damages which would be awarded and then apply a single fraction to those damages. The court may think that, although there is only one cause of action, the claimant, would, if successful, stand a very good chance of recovering, say, one of the two heads of damages which he seeks, but a significantly poorer prospect of recovering the other head of damages. In such a case, I would have thought that the court would think it right to apply a higher discount to the second head of damages than to the first.
The guidance from the authorities
The views which I have so far expressed appear to me to be consistent with logic, legal principle, and the authorities to which I have been referred, many of which give further helpful guidance. In Kitchen v Royal Air Force Association [1958] 1 WLR 563, the Court of Appeal upheld an award of damages in the sum of £2,000 against solicitors whose negligence had resulted in the plaintiff's claim under the Fatal Accidents Act to become barred by limitation. Distinguishing cases where the action "must have succeeded" and "where the plaintiff never had a cause of action" (at 574), Lord Evershed M.R. said that the case "falls into neither one nor the other categories". He said at 575 that in those circumstances:
"The question is, has the plaintiff lost some right of value, some chose in action of reality and substance? In such a case it may be that its value is not easy to determine, but it is the duty of the court to determine that value as best it can."
At 576, he expressed the view that the plaintiff had "been generously treated in being awarded" two thirds of the amount she would have received, if successful in the action, but he went on to point out that there was no appeal on quantum.
The judgment of Parker LJ was to much the same effect. At 576 he said:
"If the plaintiff can satisfy the court that she would have had some prospect of success, then it would be for the court to evaluate those prospects, taking into consideration the difficulties that remained to be surmounted."
At the end of his judgment at 577 he said this:
"I cannot say that the claim was bound to fail, and accordingly the plaintiff is entitled to something more than nominal damages. ….I confess that, in the light of my analysis of the position, I should have valued the plaintiff's potential claim at very much less [than the judge], but there is no appeal against this award in as far as it exceeds nominal damages."
It seems to me that those passages indicate the general approach to be adopted in a case such as this (at least provided the claimants establishes that he would have proceeded with the action). It also appears to me that the second of the two passages I have quoted from each judgment emphasise that the fact that the court may conclude that the claimant is more likely to have failed than to have succeeded in the action, does not prevent the claimant recovering damages. However, there are two points which should be borne in mind in such a case. First, the fact that the prospects of success would not have been good may very well have a bearing on the court's assessment of whether the claimants would actually have proceeded with the action or not, where that is an issue between the parties. Secondly, the fact that the claimant's prospects of success do not appear particularly good would obviously be reflected in the fraction to be applied to the damages which the court considers the claimant would have obtained in the action, if successful.
Before leaving Kitchen, I should refer to two passages, which, to my mind, support the conclusion that, in a case such as this, one can, if and to the extent that it is appropriate, take into account the fact that the action might have been settled rather than having gone all the way to final judgment. At 575, Lord Evershed M.R. quoted a passage in the first instance judgment with apparent approval, and that passage included this:
"I think that having regard to the fact that this lady had three children to look after her, it was a very heavy responsibility upon those advising her, if an offer of compromise had been made to reject it out of hand."
At the end of his judgment, Sellers LJ said this at 580:
"On behalf of the plaintiff, it has not been sought to establish that she was certain of victory and should have recovered £3,000, which was agreed as the appropriate sum in a successful claim under the Fatal; Accidents Acts. There was room for compromise on both sides, and, as I view it, every probability of compromise if the plaintiff's action had been pressed and I would not disturb the judge's assessment of £2,000, high though I regard it."
Allied Maples Group Ltd v Simmons & Simmoms [1995] 1 WLR 1602, although a "loss of a chance" case involving solicitors as defendants, was not a case where the claimants had lost the opportunity to pursue an action. However, it contains valuable observations as to the approach which the court should adopt in "loss of chance" cases. In his judgment, Stuart-Smith LJ emphasised that the claimants has to prove "a causal link between the negligence of the defendants and the loss suffered by the plaintiff", at 1609F. Accordingly, he emphasised that it was important to distinguish between cases where the defendant's act or omission was the alleged direct cause of the plaintiff's loss (e.g. whether "the careful driving caused the plaintiff's loss consisting of his broken leg", at 1610A) and cases where the court also has to consider what the plaintiff would have done if the negligence had not occurred (e.g. where "the defendant's negligence consists of an omission …. to provide proper equipment" in which case one has to ask "what would the plaintiff have done if the equipment had been provided…", at 1610D). In the former case "once established on the balance of probability, that fact is taken as true and the plaintiff recovers his damage in full". In the latter case, it is also necessary for the plaintiff to "prove on the balance of probabilities that he would have taken action to obtain the benefit or avoid the risk" (at 1610G). In each of those two cases, "there is no discount [in the award of damages even if] the judge considers that the balance is only just tipped in favour of the plaintiff" (at 1610B and G).
However, as Stuart-Smith LJ said at 1610B-C:
"Questions of quantification of the plaintiff's loss, however, may depend upon future uncertain events. …..It is trite law that these questions are not decided on a balance of probability, but rather on the court's assessment, often expressed in percentage terms, of the risk eventuating …., which [sometimes] depends in part at least on the hypothetical acts of a third party…"
In a case where "the plaintiff's loss depends on the hypothetical action of the third party, either in addition to action by the plaintiff … or independently of it" (1611A), Stuart-Smith LJ said that the law was as stated by the House of Lords in Davies v Taylor [1974] AC 207, and in particular by Lord Reid at 213, and then summarised the law in his own words at 1614C-D:
"[T]he plaintiff must prove as a matter of causation that he has a real or substantial chance as opposed to a speculative one. If he succeeds in doing so, the evaluation of the chance is part of the assessment of the quantum of the damage, he range lying somewhere between something that just qualifies as real or substantial on the one hand and near certainty on the other. I do not think that it is helpful to seek to lay down in percentage terms what the lower and upper ends of the bracket should be."
Hobhouse LJ agreed, and cited as particularly helpful guidance, the following observation of Lord Reid in Davies [1974] AC 207, 213:
"You can prove that a past event happened, but you cannot prove that a future event will happen and I do not think the law is so foolish as to suppose that you can. All that you can do is evaluate the chance. Sometimes it is virtually 100%: sometimes virtually nil. But often it is somewhere in between" (at 1612B).
Although Millett LJ dissented in the result, I do not read his judgment as differing on the principles to which I have referred.
Subsequently, the Court of Appeal had to consider a case where the judge at first instance, while accepting that the defendant solicitors were clearly in breach of their duty as a result of which the plaintiff's action against a bank had been dismissed for want of prosecution, nonetheless dismissed the plaintiff's claim on the grounds that the action against the bank had no reasonable chance of success. The case was Mount v Barker Austin [1998] PNLR 493, and the Court of Appeal dismissed the appeal.
Simon Brown LJ (with whom Ward LJ agreed), set out four principles at 510D to 511C. They were, albeit somewhat abbreviated, as follows:
"1. The legal burden lies on the plaintiff to prove that in losing an opportunity to pursue his claim…he has lost something of value i.e. that is claimed ..had a real and substantial rather than a merely negligible prospect of success….
2. The evidential burden lies on the defendants to show that despite their having acted for the plaintiff in the litigation and charges for their services, that litigation was of no value to their client….plainly the burden is heavy in a case where the solicitor had failed to advise their client of the hopelessness of his position …. If, of course, the solicitors have advised their client in regard to the merits of his claim… such advice is likely to be highly relevant.
3. If and in so far as the court may now have greater difficulty in discerning the strength of the plaintiff's original claim.. than it would have had at the time of the original action, such difficulty should not count against him, but rather against his negligent solicitors….
4. If and when the court decides that the plaintiff's chances in the original action were more than merely negligible, it will then have to evaluate them. That requires the court to make a realistic assessment of what would have been the plaintiff's prospects of success had the original litigation been fought out. Generally speaking one would expect the court to tend towards a generous assessment given that it was the defendant's negligence which lost the plaintiff the opportunity…."
The penultimate sentence that I have just quoted could be said to support Miss Start's contention that one does not take into account the prospects of settlement. However, I do not read Simon Brown LJ as laying down any such proposition. The question of whether one can take into account the prospects of a settlement was not, as I see it, relevant in that case, and did not appear to have been the subject of any argument.
I was also referred to an unreported decision of the Court of Appeal, Wilkinson
-v- Macfarlane (5th February 1997) where, in the second part of his judgment, Brooke LJ (giving judgment to the court) effectively rejected the contention:
"that the failure to include in a pleading any properly arguable point which had a reasonable prospect of success, however small, constituted professional negligence."
Brooke LJ went on to discuss cases involving the evaluation of the "loss of a chance" and referred with approval to Allied Maples and to Kitchen. He also said this:
"On different sets of facts reported examples of judge's valuations have included compensation for a one in three prospect of success in Yardley v Coombes (1943) 107SJ 575 and a 75% chance in Gregory v Tarlo (1964) 108 SJ219 (see the discussion of these cases in Jackson & Powell on Professional Negligence, 3rd Edition 1992, paras 4-182 to 4-185). The need to conduct such an exercise, once negligence is established, where the factual outcome would have been uncertain, is soundly based in both principle and authority."
A point of law
Before leaving this topic, I should like to discuss how the court should deal with a pure question of law which might have arisen in the action. For instance, in a case such as the present, assuming that the claimants establish that, on the balance of probabilities, they would have maintained the action against Touche Ross, and that there was a real chance of recovering substantial damages from Touche Ross in the action, the question whether a certain head of damage would have been recoverable from Touche Ross may well turn on whether, as a matter of law (if all the relevant facts are clear) a certain head of damage would have been recoverable. Should the court assessing the damages for the loss of the chance resolve that issue of law or, provided that it is satisfied that there is a real argument both ways on the issue, should the court award something for loss of this particular head of damage, but, because there was a prospect of the head of damage failing in law, should a further discount be applied to that head of damage?
In my judgment, the proper approach to the court to an issue of law which would have arisen in the action, which the claimant has been deprived of the opportunity to bring, is the same as in relation to an issue of fact or opinion which the claimant would have established in the action. However, at least in general, the court should in my judgment be far more ready to determine that the claimant would have failed or succeeded on a point of law than to determine that the claimant would have failed or succeeded on a point of fact or, even, opinion. That conclusion appears to me fair and practical, as well as consistent with the approach of the Court of Appeal in the three cases to which I have referred (albeit that they are not, as I have mentioned, determinative of this issue).
Indeed, where the defendant to a "loss of a chance" claim raises a point of law which, if correct, would have defeated the action, interesting issues can arise. For instance, a Judge at first instance determining a claim for repayment of money paid under a mistake of law prior to the decision of the House of Lords in Kleinwort Benson -v- Lincoln City Council [1998] 4 All ER 513, would have been bound to dismiss the claim. However, I do not think that it follows that, faced with a claimant contending that, through the defendant's negligence, he had been deprived of the opportunity to pursue an action for the recovery of money paid under a mistake of law, such a judge would have been constrained to dismiss the claim: he would have been entitled to take into account the prospect of the House of Lords entertaining an appeal in the action and changing the law (as in fact it did in Kleinwort Benson).
Because the issue did not arise, there is little assistance on this point in any of the cases to which I have referred. It is true that in Mount, the claim failed because the court formed the view that the claimant would have failed in his action as a matter of law, but, as I read the judgments, the court would have reached that conclusion on either approach (bearing in mind that, even if the court was considering the issue on the 'loss of a chance' basis, it was of the view that the claimant's prospects of success were so poor that, in the event, he did not lose anything of value).
However, it is, I think, arguably implicit in the third and fourth numbered principles in the judgment of Simon Brown LJ. in Mount that, at least in an appropriate case, it is right to assess damages on the 'loss of a chance' basis even where the issue in the action would be one of law. At the end of his third numbered paragraph, Simon Brown LJ. said that the assessment of the claimant's claim may not be more difficult than in the action itself 'where the original claim…..turned on questions of law or the interpretation of documents'; his fourth numbered paragraph (quoted above) seems to apply to all types of cases encompassed within the previous paragraph. However, it would be wrong for me to place much weight on that, because, as I have mentioned, it does not seem to me that the Court of Appeal in Mount had to consider the aspect which I am now discussing.
The present case
Finally, in relation to the present case, I would make the following points. First, in some loss of a chance cases the court may think it right to view the prospects on a fairly "broad brush" basis; in other cases it may be correct to look at the prospects in far greater detail. In my view, the present case falls in the latter category. Secondly, at least in the present case, I believe that the court should be comparatively prepared to come to a clear conclusion on the likely outcome on at least some of the matters which would have been in issue in the action. My reasons for these two conclusions are as follows.
First, the evidence and arguments in relation to the various issues which would have arisen in the action have been substantially more extensive than in most loss of a chance cases. Secondly, the difference in time between the notional hearing of the action and the hearing of these proceedings is not very substantial (less than three years). Thirdly, so far as the merits are relevant (as to which see the fourth proposition of Simon Brown LJ in Mount) most of the delay (any delay before November 1992 and any delay after July 1995) was attributable more to the claimants rather than to the defendants (who were responsible for the delay between November 1992 and July 1995).
On the other hand, it would be wrong to be too ready to make firm findings as to what the court would have decided in the action on at least some of the issues which have been debated. First, it may be wrong in principle to do so because an issue might be well arguable either way even if I have a view on it. Secondly, the oral and documentary evidence available to me is, I am satisfied, less than would have been available in the action. On witnesses, I did not hear from some witnesses who I believe would have been called in the action. Also, a further 23/4 years, while not substantial, is a significant period during which memories can be expected to weaken. Some of the documentation which would have been available in the action but was not available to me could be crucial.
Introduction
Rather unusually for this sort of case, but quite understandably in the circumstances, the defendants contend that the claimants would not have proceeded, or should in all the circumstances be treated as if they would not have proceeded, with the action. In this connection, it is clear that the onus of establishing that the claimants would have proceeded with the action either to the point of getting a valuable result (by which I mean a result involving the recovery of a substantial sum from Touche Ross after all costs had been paid) from a settlement or final judgment, is on the claimants; it is equally clear that the burden of proof is the normal civil one, namely the balance of probabilities. That seems to be right in principle, and it is supported by the observations which I have quoted of Stuart-Smith LJ in Allied Maples.
The defendants also contend that, in order to succeed on this issue, the claimants must show that they would have pursued the action honestly. The point at issue in this connection in this case is that the claimants had the benefit of legal aid for the action, and the defendants contend that if, for instance, the claimants obtained legal aid by dishonestly under-declaring their income or assets, they should not be able to rely upon the fact that they had legal aid as a ground, let alone the ground, for concluding that they would have proceeded with the action. While that proposition may require a degree of refinement in relation to a particular set of facts, I did not understand it to be contradicted by Mr Salter, and it is right to record that, in any event, I consider that it is well founded.
The claimants' case is, of course, that they would have pursued the action until either a satisfactory settlement had been achieved with Touche Ross or final judgment had been obtained. So far as the legal aid aspect is concerned, the claimants' case may be summarised as follows:
1. Each claimant had the benefit of legal aid;
2. There are no good grounds for believing that either of them obtained legal aid on the basis of inaccurate information provided by them as to income or as to capital;
3. There is no good reason for thinking that legal aid would have been withdrawn, let alone revoked;
4. In so far as any change in circumstances may have resulted in legal aid being withdrawn, it was due to voluntary monthly payments being made by their father, and, had they been advised as to its consequences, they would have perfectly properly refused those payments;
5. In any event, even if legal aid had not been available, the claimants would have pursued the action without legal aid.
All these aspects of the claimants' case were hotly contested in evidence and argument.
The first question it is convenient to consider is, given that both the claimants obtained legal aid, should I nonetheless proceed on the basis that they ought not to have got legal aid? In this connection, Miss Start makes these points. The first is that each of the claimants either deliberately or negligently mis-stated his financial position, as a result of which he obtained legal aid when he ought not to have done so. Secondly, she contends that the claimants artificially arranged their affairs so as to qualify for legal aid. Thirdly, she contends that, at least in the case of Peter, even if he accurately stated his financial position, he only obtained legal aid because the Board misinterpreted the relevant Legal Aid Regulations ("the Regulations").
Although it is in fact not decisive to the resolution of these issues, at least in my judgment, I think it right to record that it appears to me that, while the onus on the question of whether or not the claimants would have obtained legal aid to proceed with the action is initially on the claimants, that onus is, at least prima facie, discharged where, as here, the claimants had actually obtained legal aid in connection with that very action. Accordingly, the onus is on the defendant to establish that what did happen and appears, at least on the face of it, to have been likely to continue, ought not have happened or would not have continued.
The evidence relating to the legal aid applications of each of the claimants was rather complicated, due to a number of factors. First, the claimants were seeking (and indeed obtained) legal aid in connection with two sets of proceedings. The other set of proceedings was the claim for negligence against Durrants, based on the contention that Durrants ought to have ensured that Mr Geminder acknowledged his release of the October indemnity. (In this connection, it will be recalled that Mr Geminder sued the claimants for about £40,000 on the basis that the October indemnity had not been released, and his claim was settled on the basis that the claimants paid him just over £18,000. It will also be recalled that the claimants ultimately settled their claim against Durrants, in respect of which they were legally aided throughout). Secondly, the claimants used different firms of solicitors: initially Harvey Ingram, then the defendants, but there was a period of overlap when Harvey Ingram were acting in the claim against Durrants and the defendants were acting in the action. Thirdly, each of the claimants made more than one application for legal aid. Fourthly, the Legal Aid Bundle prepared for the purpose of these proceedings appears to have been collated at least in part almost in random order. In connection with this final point, I am grateful to Miss Start for having prepared a "Legal Aid Chronology" which accompanied her full and clear closing written submissions.
Peter's application for legal aid
I deal with Peter's application first. He first applied for legal aid on 26th November 1991, and his application was refused on 18th March 1992. He renewed his application on 10th June 1992; indeed, he filled in two applications bearing that date, one in connection with the proceedings against Durrants and the other in connection with the action. The application, in connection with the claim against Durrants was refused on 28th July 1992. His application in connection with the action was refused on 11th September 1992. He made a fresh application on 15th October 1992, which was accepted "subject to means" on 4th November 1992 and, on 10th December 1992, the Board said that it required details of his financial circumstances to be "fully completed" (albeit that their letter refers to John, it is, I think, common ground that it is intended to refer to Peter). This resulted in a further application being completed by Peter on 21st December 1992. A subsequent application made by Peter on 8th January 1993 was refused on 12th March 1993. Peter then wrote to the Board complaining about the rejection on 5th April, and followed this up with a telephone conversation on 21st May, 1993, as a result of which Peter obtained legal aid (albeit limited in scope) finally on 6th July 1993. This was extended on 6th September 1993 to permit service, and further extended on 7th December 1993 to permit expenditure up to £25,000, including counsel's opinion.
The defendant's case is as follows. Peter knew from the inception that his income and assets were such that it would be difficult, indeed impossible, for him to qualify for legal aid (a point made expressly by Peter in a letter of 26th November 1991). After the initial refusals of legal aid, Peter became aware that if he could persuade the Board that his "disposable income" (which is income after tax, and after certain permitted expenditure) was less than £6,800 (the figure fixed by Regulation 4 of the Civil Legal Aid (Assessment of Resources) (Amendment) Regulations 1992 ("the 1992 Regulations"), which came into force on 6th April 1992, and whose effect was continued by the successor 1993 Regulations which came into effect on 12th April 1993) then he would qualify for legal aid. Accordingly, either Peter stated in his legal aid application that certain outgoings were greater than they in fact were or, alternatively, he intentionally increased those outgoings with a view to bringing his disposable income below £6,800 so that he could qualify for legal aid. In this connection Regulation 9 of the original 1989 Regulations, provides that if it "appears" to the relevant assessment officer that an outgoing has been created or increased "with intent to reduce" the amount of disposable income, then the new or increased outgoing is to that extent to be disregarded when assessing disposable income.
It seems to me that if I am satisfied that Peter dishonestly filled out the application form and that, as a result of that dishonesty, he obtained legal aid, and that he would not have obtained legal without being dishonest, then it would be wrong to treat him in these proceedings as if he had, or would have had, the benefit of legal aid for the action. On the other hand, I am far from convinced that the same conclusion would be appropriate if I took the view that he had intentionally increased his actual outgoings (without being dishonest) so as to qualify for legal aid. If he had done so, then while no doubt many would regard such "massaging" of his disposable income as unattractive or even morally wrong, it would not have been unlawful. In that event, Regulation 9 of the 1989 Regulations would have left it to the assessment officer to adjust Peter's disposable income in light of the massaging if it had "appeared" to him to have occurred. In those circumstances, in the absence of any wrong-doing by Peter, I do not consider that it would be appropriate for me to proceed on the basis of what I think the assessment officer should have done, if the course he took was based on forms which Peter had accurately completed. It is self evident from the forms that certain items of expenditure (to which I shall shortly turn) had been increased between Peter's first application and his last and successful application. If what those applications recorded was accurate, then it was for the assessment officer to invoke Regulation 9, and I see no justification for going behind his decision on that issue.
The defendant's contention is that three components involved in the exercise of determining Peter's household's disposable income appear to have changed between initial application and his final application, and that each of the three changes was either untruthfully put forward by Peter or was artificially increased.
First, and most significant in terms of quantum, was that Peter's wife was earning in the region of £30,000 per annum in November 1991. This income was from a job from which she voluntarily resigned on 3rd April 1992, and although she started earning again £30,000 from 1st September 1992, she was made redundant from that job in May 1993. I do not think that Miss Start seriously suggests that there was evidence to show that this was not an accurate summary of Mrs Peter Harrison's employment history; certainly, I consider there is no evidence for calling it into question. Further, there is no real basis for thinking that she gave up her employment in 1992 to enable her husband to obtain legal aid; it is particularly difficult to accept such an argument, given that she took up a new job at the same rate of pay within a few months. There is nothing to suggest that she left that second job voluntarily, let alone that she left it in order to enable the family income to be sufficiently low so that Peter could get legal aid.
The second area which gives grounds for suspicion according to the defendants is that of school fees in respect of which Peter recorded different annual sums. In a letter that Peter wrote to the DSS in January 1992, he recorded his total expenditure on school fees for his three children as £10,800. In his two applications dated 10th June 1992, one recorded his expenditure on school fees at £11,700, and the other at £10,800. In a note of 3rd August 1992, he recorded his liability for school fees at £12,000 a year, but a week later he again wrote to the DSS stating that his expenditure on school fees was £10,800 a year. In Peter's final legal aid applications (i.e. those of 21st December 1992 and 8th January 1993) school fees were stated as being £11,600 per annum.
There is no doubt that the documents upon which the defendants rely in relation to school fees show that Peter was not consistent. However, that the total annual expenditure on school fees for three children could have increased from £10,800 at the beginning of 1992 to £11,600 at the end of that year is not of itself particularly surprising. Particularly with inflation at the levels it was in the early 1990's, one would have expected fees to increase with the passage of time. Further, they might be expected to increase, as Peter said in evidence, because his children were growing up and even possibly changing schools. Indeed on one of his two 10th June 1992 applications he explained that the fees for one of his children had been increased by £300 per term. In any event, Peter produced bills from his children's schools, and I do not understand it to have been suggested that those call into question the accuracy of the figure he inserted for school fees in his application for legal aid which was ultimately successful. To a substantial extent, he has himself to blame for this issue having been raised, as he signed documents which do not show a consistent story. However, having seen the relevant evidence on this issue, and having seen him in the witness box, I do not consider that his final and successful application for legal aid was inaccurate in this connection. Further, Peter did not strike me as dishonest, but I do consider that he was capable of being slipshod and also of sometimes being able to convince himself of the truth of what he wanted to believe even when it was not in fact the case.
That leaves the third, and most hotly pursued, of the defendant's three arguments on this point, which concerns the expenses which Peter recorded as attributable to the nanny he employed for his children. In the application of 23rd January 1992, Peter recorded the cost of the nanny at £3,120 per annum and the cost for "nanny's transport, food etc." as £7,800 per annum. In the application dated 10th June 1992, the nanny's pay was recorded as £108 (I think that this was clearly per week) and "nanny's living expenses children's transport to and from school" was recorded as £7,800 per annum.
In a letter of 18th September 1992, the Board declined to grant Peter legal aid on the grounds that his disposable income was still too high to qualify. However, on 9th October 1992, Peter wrote to the Board a letter headed "Very Urgent! Very Urgent!" referring to the Board's letter and stating that he had "discovered an error on my part". His letter went on:
"Due to the fact that this action is in danger of going beyond the statutory limitation period I was referred directly to the DSS Assessments Office... where I spoke with Mrs Murphy who was most helpful. The figures appear to be correct with one exception, that is the figure for the nanny's earnings. In error, I used the figure of £3,120 assuming that we would be reverting to an au pair early in the year. This has not proved possible based on the retention of our existing nanny, the annual cost actual[ly] totals £5,593.00.
The revision of my claim, would I believe, make me eligible for legal aid and confirmation of this is very urgently required in order that the action does not become time-barred."
In this connection, it is to be noted that, on his copy of the Board's letter of 18th September 1992, where they recorded his yearly disposable income as £8,273 per annum, Peter had written underneath the figure of £8,273, the figure of £6,800, which he had deducted from the Board's assessment, and come up with a figure of £1,473. As a result, Peter made his further application for legal aid on 15th October 1992.
Following the request of the Board, Peter made his further application on 21st December 1992. In it, he recorded his expenditure of the nanny as "salary for full time nanny" £6,400 p.a. and "accommodation costs for live-in nanny" as £3,900 per annum. This was repeated in his application of 8th January 1993.
Miss Start was able to put forward a number of reasons for believing that Peter may have knowingly exaggerated the cost of his children's nanny on the form he filled in during December 1992 and in relation to his later application which resulted in him ultimately obtaining legal aid. First, there is the inconsistency between the various figures as to the cost of the nanny in various documents produced by Peter. Secondly, there are hand-written calculations carried out by Peter which indicate that he worked backwards, in the sense that he appears to have started with the proposition that he needed to get his disposable income below £6,800, that he knew what figures the Board had assessed as his disposable income, and that he therefore, at least on one view, appears to have adjusted the cost of his nanny upwards from his original declaration so as to bring his disposable income, as calculated by the Board, to below £6,800. Thirdly, despite having said that there were documents which confirmed the figures in the final application form, and having had at least a weekend to find those documents, he did not produce any documents which really assisted on the issue. Fourthly, his evidence on this issue was not given in a particularly convincing way: he was argumentative, petulant and, at times, evasive. Miss Start also relied on the fact that Peter had dishonestly misled Mr Geminder as to the financing which he said had been available on 7th October 1986: that was indeed untrue, but it was a misrepresentation made in very different circumstances, and which was, within a couple of days, correct. I do not consider that it assists the argument that Peter was a dishonest witness, or even that he dishonestly completed his applications for legal aid. Having said that, I have found the issue relating to Peter's final declaration as to his nanny's payment a difficult issue to resolve in a case with a number of challenging issues. While acknowledging that each of the points summarised above has force, and indeed that each was forcibly advanced in cross examination and argument by Miss Start, I have reached the conclusion that, although he did himself no favours by the way he gave evidence on this issue, Peter's figures in relation to the cost of the nanny in the final application form were not inaccurate, and in particular were not dishonestly recorded so as to bring his disposable income below £6,800.
There is no reason to doubt Peter's evidence that during 1992, the nanny who had been employed in January was replaced by a new nanny, Miss Leanne Jobson, whose cost was accurately reflected in the final application form.
It is not particularly surprising that the rate of pay for a nanny should change, especially if there is also a change of nanny during a given year. The £3,120 per annum as at January 1992 was in respect of a nanny who was replaced by Miss Jobson around June 1992. The increase in pay from £3,120 per annum (recorded in the 23rd January 1992 application) to around £5,600 per annum (being £108 per week on the10th June 1992 application and the £5,593 per annum on the 9th October 1992 application) represents a substantial increase. However, it does not seem to me particularly unlikely or unreasonable: Miss Jobson may have been more qualified than her predecessor or the increase may be due to the fact that her predecessor was prepared to work for less money.
The increase from around £5,600 per annum recorded in the June and October 1992 applications to the £6,400 per annum recorded in the December 1992 and January 1993 applications, is not explicable by any change in the identity of the nanny. There are three possibilities so far as the increase in the nanny's pay between June/October 1992 and December 1992/January 1993 is concerned. The first is that there was no increase in her pay, and Peter lied about it on the application form; the second possibility is that Peter increased her pay so as to bring him below the maximum of £6,800 disposable income; the third is that there was a genuine increase in her pay. I consider that the defendants are only assisted by first of those three possibilities. As I have mentioned, Regulation 9 leaves it, in effect, to the Board to decide whether there has been an artificial increase in an applicant's outgoings so as to bring him within the disposable income limits, and, on this hypothesis, Peter had provided the Board accurately with such information as it sought, and it was a matter for the Board, if they thought it right, to refuse legal aid on the basis that Peter had artificially brought himself within the relevant limit, or to make further enquiries of Peter, if the Board thought fit, in order to satisfy themselves whether or not he had done so.
There are a number of hand written notes showing how Peter calculated his income and outgoings, and a number of points were made about them in cross examination and in argument. It would add considerably to the length of what is already going to be a very long judgment, and would not take matters any further if I were to go through each of the hand written documents and every one of the arguments raised. I would make the following points. First, the documents do show that Peter was carrying out detailed calculations of his income and outgoings. That is what one would expect, and it is perfectly proper. Secondly, the documents also show that Peter was conscious of the need to establish, if he could, that his disposable income was less than £6,800, because he appreciated that, if he failed to do this, he would not qualify for legal aid. I do not regard that in itself as sinister, although there is obviously more room for dishonesty and rearranging one's affairs if one has the wish, indeed, as I accept Peter had, a strong wish, to achieve a particular figure. Thirdly, it seems clear that, at least on some occasions, Peter "worked backwards", particularly after he had received the rejection from the Board on 18th September 1992, on the basis that his disposable income was more, but less than £1,500 more, than the maximum of £6,800. I accept that that involves moving a little further down the potential slippery slope of being tempted into dishonestly adjusting figures or artificially increasing expenditure, so as to eliminate the "gap". However, a person who is understandably and properly anxious to obtain legal aid, and who is informed that his disposable income is, only to a comparatively small degree, in excess of the permitted maximum on the basis of figures that he has provided, would be acting neither unreasonably nor dishonestly if he went back to check his figures to see whether he had missed anything which would enable him properly to bring himself below the permitted maximum.
The fact that Peter was in touch with the DSS and wrote in terms to the Board stating that he had made a mistake in his earlier figures seems to me to show not only that the Board had the opportunity of checking with the DSS, checking with Peter, and challenging him at the time, if they were concerned that he was not telling them the truth, but that Peter must have appreciated this.
As for Peter's performance in the witness box, he was not an impressive witness. However, that has to be judged against the fact that some people are better suited than others to give evidence in complicated actions, and Peter struck me as a person who was not comfortable giving evidence, but not for any sinister reason. Furthermore, he had a particularly difficult time. First, his cross examination was interrupted twice, once for a full day which was devoted to the question of whether a witness summons (issued by the defendants in respect of Sir Ernest Harrison) should be set aside, and once for three days while Miss Start was preparing to take over from her leader who had retired from the case through illness. He had the rather unusual experience of being cross examined by two different people. While it is not a criticism of counsel, he was given long and fairly rough ride in the witness box, not least because his evidence covered a wide range of matters, and the accuracy of his evidence, and indeed his honesty, was fairly strongly challenged on a number of different issues. Further, Peter plainly finds the history of the whole matter (particularly the events from June 1986 to June 1988) very painful.
I am not satisfied on the evidence that Peter did not tell the truth when he filled in the applications of 23rd December 1992 and 8th January 1993, when he sought, and eventually obtained, legal aid. In reaching the conclusion that Peter was not dishonest, I remind myself of the principle expressed by Denning LJ in Bater -v- Bater [1951] P, 35 at 36-37 and Hodson and Morris LJJ in Hornal -v- Neuberger Products Limited [1957] 1QB 247 at 263-4 and 266. That principle is embodied in an observation in the first case, where Denning LJ said this:
"A civil court, when considering a charge of fraud, will naturally require for itself a higher degree of probability than that which it would require when asking if negligence is established."
Bearing in mind all the circumstances, I do not consider that Peter obtained legal aid by misleading the Board as to his disposable income.
In this connection, it is right to mention, for the sake of completeness, that it appears that the defendant's solicitors approached Miss Jobson, perfectly properly, as was their undoubted right, but they chose not to call her.
It is right to mention that Peter was also criticised for failing to disclose to the Board other sources of income which were available to him. In this connection, I think that Miss Start is correct in contending that Peter ought to have informed the Board of the fact that he was employed by a company called Sashfir Ltd and was also involved with another company called Glowleisure Ltd. However, on documentary evidence I have seen and indeed on the basis of the oral evidence given by Peter, it appears clear to me that although he did work for those two companies, and indeed had an interest in those two companies, he did not receive any financial benefit from any such employment or interest, because neither of the two companies made any money. While the terms of the legal aid application form would have required Peter to give information about his employment by, and interest in, those two companies, I acquit him of any improper motive in having failed to do so. In any event, I am wholly unpersuaded (and indeed I did not understand Miss Start to argue) that, had Peter revealed to the Board his employment by and interest in those two companies, it would have had any effect on his entitlement to legal aid.
Finally on this aspect, I ought also to mention that Miss Start argues that the Board was wrong in having taken into account as part of his outgoings the school fees which Peter paid for his children. That argument turns upon the construction of certain provisions of paragraph 11 of schedule 2 to the 1989 regulations as well as the Income Support (General Regulations) 1987. I am not persuaded that the argument is correct, but, even if it is, I do not consider that it would assist the defendants in the present case. If Peter should not have got legal aid because of a mistake of law made by the Board, that does not, in my judgment, entitle the defendants to argue that Peter should be treated as if he had not received legal aid. The primary question I have to decide on this issue is whether Peter would have received legal aid to maintain the action; given that he did in fact receive legal aid, it seems to me that I can only proceed on the artificial assumption that he did not receive legal aid if one of two conditions is satisfied, namely that he obtained legal aid through some wrong-doing on his own part, or that, although he initially received legal aid, it would have been withdrawn, for some reason or another.
John's application for legal aid
John's position with regard to obtaining legal aid can be more quickly dealt with. Although he applied for legal aid in early 1992, his application was rejected on the grounds that his disposable income was too great. However, John was made redundant in July 1992, and that prompted Peter to suggest that he should re-apply, which he did, by an application dated 12th October 1992.
Having obtained legal aid on 9th November 1992 in relation to the Durrant Piesse claim, John obtained legal aid (albeit that the certificate was limited as I have mentioned) in connection with the action on 4th January 1993.
The criticism made by Miss Start in relation to John's application of October 1992 is that he had received a redundancy payment of A $30,000 which he did not declare to the Board in his application, which he ought to have declared at his application, and which, had he declared it, would have disqualified John from obtaining legal aid.
When this was put to John, he said in evidence that he had spent virtually all his redundancy pay by the time he came to re-apply for legal aid in October 1992. While it would not be right to describe John as a witness whose evidence I accept on all matters, I thought him generally an honest witness, and there is, in any event, no reason to doubt his evidence on this point. Apart from challenging him in cross examination, the defendants (not surprisingly, it is fair to say) were unable to point to any specific evidence which called John's evidence on this point into question. Furthermore, there was nothing inherently unlikely about John's evidence in this connection.
However, even on this basis, Miss Start contends that John be treated as ineligible for legal aid because he should, in effect, be treated as not having spent his redundancy pay in light of Regulation 9 of the 1989 regulations. For the reasons I have given in relation to Peter in the immediately preceding sub-section of this judgment, I do not consider such an argument to be well founded in principle. Additionally, I am not satisfied that, when spending his redundancy pay, John was doing so 'for the purpose of making himself eligible for legal aid [or] reducing his liability to contribute [towards the costs of the action]".
Assignment of the cause of action
While I have rejected the defendants' argument that I should proceed on the basis that neither of the defendants was in fact entitled to legal aid for the purpose of the action, it is right to deal with an alternative argument raised by Mr Salter in the event that I had concluded that only one of the claimants was entitled to legal aid. If only John should be treated as having been entitled to legal aid, then I would still think it right to proceed on the assumption that the action would nonetheless have proceeded. This is because, on the balance of probabilities, I believe that Peter would have assigned his cause of action against Touche Ross to John, so that John would have been the only claimant in the action, for which he would have been legally aided.
This is not merely a clever point which had occurred to the claimants and their advisers after the event. After October 1992, when it appeared that John's redundancy might lead to him obtaining legal aid, whereas Peter's application for legal aid looked unpromising, the possibility of such an assignment was specifically canvassed. Indeed, it was mentioned in terms by Mr Camillin in that part of John's application for legal aid on 1st October 1992 which had to be filled in by the claimant's solicitor.
In my judgment, and subject to any other points with which I must deal in this section of the judgment, it is more likely than not that, if Peter had not obtained legal aid, the claimants would have agreed between themselves that Peter assign the benefit of his claim against Touche Ross to John. So far as the principle of such an assignment is concerned, John clearly had a direct interest in the action, and therefore there would have been nothing offensive about an assignment of his co-claimant's cause of action to him. Indeed, I do not understand Miss Start to suggest otherwise. Furthermore, effectively for the same reason, it appears to me that there is no reason to think that such an assignment would not have been effective for legal aid purposes. It is not as if the assignment would have been to a person who qualified for legal aid but who could not have brought proceedings in the absence of the assignment: John clearly wanted to bring the proceedings and had sought and was seeking legal aid for that purpose.
In these circumstances, while it is fair to say that there was only very limited argument, and indeed only limited evidence, on this issue, I consider that if I am right in holding that John should be treated as entitled to legal aid for the purpose of pursuing the action, but if I should have held that Peter should not be treated as so entitled, then, had the claimants found themselves in that position by around the middle of 1993, they would have entered into an arrangement whereby Peter would have assigned his share of the cause of action to John, and John would have proceeded with the action alone, and with the benefit of legal aid.
The possibility of withdrawal of legal aid
Even if, as I consider to have been the case, the claimants not only obtained legal aid but were entitled to obtain legal aid, the defendants nonetheless submit that, during the notional currency of the action, the circumstances of the claimants changed in such a way as to render them ineligible for legal aid, and that they should have informed the Board of this fact, as a result of which, legal aid would have been withdrawn.
The circumstances which give rise to the argument that, even if the claimant were initially entitled to legal aid, I should proceed on the assumption that it would have been withdrawn, are that, from March 1994 onwards, Sir Ernest gave each of the claimants £1000 per month, and that this income would have taken each of the claimants out of their eligibility for legal aid.
On the basis of the regulations with which I have been provided, and on the basis of the factual evidence given by the claimants, it appears to me that, subject to one point, Miss Start's submission for the defendants on this aspect is well founded. Mr Salter argues on behalf of the claimants that the £1,000 per month they each received from their father was income which should not have been taken into account when assessing their disposable income for the purpose of eligibility for legal aid. He also contends that there was no evidence to show that, had they revealed to them that they were each in receipt of this £1,000 per month, the Board would have withdrawn legal aid. I do not consider either of those arguments to be well founded.
It is true that Sir Ernest could have ceased payment of either of his sons' £1,000 per month at any time had he so chosen, but that does not appear to me to alter the fact that each of the claimants was in fact receiving £1,000 per month, and, as a matter of ordinary language, so long as each of them was receiving this monthly sum, it was part of his income. There is nothing unfair about this, because if at any time Sir Ernest ceased paying the money, there would be a change of circumstances which would have entitled them to reapply for legal aid. As to the argument that the Board might nonetheless have continued legal aid, it seems to me that, on the true construction of the Regulations, if someone is not eligible for legal aid due to their disposable income being too high, then it is not open to the Board to grant them legal aid. Indeed, one of the grounds for being ineligible for legal aid is having disposable income in excess of a certain sum. As I understand it, Mr Salter does not challenge the contention that, if one could take into account the £1,000 per month received by each of the claimants after March 1994 as part of their income for legal aid eligibility, then, subject to his main argument to which I now turn, they would have become ineligible for legal aid.
Neither of the claimants informed the Board that they were receiving £1,000 per month from their father with effect from March 1994. Each of them accepted, quite rightly in my judgment, that he ought to have done so, particularly in the light of what is contained in the forms which they had filled in. In his evidence, John said that he had in fact informed Mr Camillin of his change of circumstances, but that Mr Camillin did not tell him that he should inform the Board. Mr Camillin denied that such a conversation took place. On this point I prefer the evidence of Mr Camillin, who struck me as an honest witness. I also have the evidence of an associate of his who attended the meeting at which John said that he has given this information to Mr Camillin. While the associate was not present for the whole of the meeting, it seems to me more likely on the evidence I have heard that, if John's evidence on this point was correct, he would have given the information to Mr Camillin at the time the associate was present. The associate does not recall it. There is nothing in any contemporary note to suggest that the information was given to Mr Camillin. Of course, with the passage of time, it is possible that John did say something about his extra income to Mr Camillin, who did not appreciate the possible significance of the matter, and has now forgotten about it. However, on the basis of the evidence, I have concluded that John has either mis-remembered the conversation, or has persuaded himself that he mentioned the matter to Mr Camillin, when he did not in fact do so: I acquit him of deliberately misleading the court on this issue.
Mr Salter argues that, by March 1994, when Sir Ernest started paying each of the claimants £1,000 per month, the minds of their claimants and their advisers, and indeed of the Board so far as it was concerned with the proceedings, was on the question of validity of the Writ, and not on the action generally, let alone on legal aid. On 1st November 1993, Judge Rich had waived the irregularity in service, thereby effectively allowing the action to proceed, but his decision was under appeal, and his decision was reversed on 30th January 1995. Accordingly, so far as the claimants were concerned, the matter was, to some extent, in a state of suspended animation, and they were not really directing their minds to the question of their legal aid certificates in the action (although they should have been). Had they done so, runs Mr Salter's argument, the claimants would have discussed the matter with Mr Camillin, who would presumably have advised them that they would have to inform the Board of their change of financial circumstances, and that they would be at risk of losing legal aid. It is said that the consequence of the advice would have been that the claimants would have decided to instruct their father to cease paying £1,000 per month, and either to pay them nothing or to pay them a sum which did not detrimentally impinge on their eligibility for legal aid.
Once again, this was not a matter which was gone into in great detail in the evidence, or indeed in argument. (That is not meant as a criticism of counsel: the present case involves a fair number of issues, and if each one had been examined in great detail, the length of the hearing would have been considerably extended; as I have mentioned, even as it was it lasted double its estimated time). I have reached the conclusion that Mr Salter's argument on this point is a good one, and I would express my conclusion in this way. Given that Sir Ernest was prepared to pay the claimants a total of £24,000 a year, the claimants would have had to consider whether they were better off being paid £24,000 a year and forfeiting their right to legal aid, or whether they should tell their father that they did not wish to receive £24,000 a year, and continuing with their legal aid. In either case, as I see it, they would have continued with the action. If they would have been better off receiving £24,000 a year and continuing with the action, while forfeiting their right to legal aid, then it is hard to believe that they would not have continued to accept £24,000 a year. On the other hand, if it was worth more to them to be entitled to legal aid, then it is hard to see why they would have wanted to accept £24,000 per year. Given that the claimants were plainly keen to proceed with the action, and even allowing for the fact, which I accept, that they were both very concerned about the potential adverse consequences should they lose, I consider Mr Salter's argument on this point to be correct. It is right to say that his argument also ties in with the topic dealt with in the next part of this section of the judgment.
It is right to mention one point which Miss Start raises and which could be said to throw some doubt on the conclusion. She refers again to Regulation 9 of the 1989 Regulations which, it will be recalled, effectively provides that if a person voluntarily gives up income for the purpose of remaining eligible for legal aid, that income is nonetheless liable to be taken into account when assessing his disposable income. I am unpersuaded that this would apply to a case where a parent was offering voluntarily to help out a child, even where that child is an adult. Doing the best I can, it seems to me that if the Board had been told by the claimants in March 1994, some sixteen months after the proceedings had been served on Touche Ross, that the claimants had been offered money from their father, but they had refused because they wished to continue with legal aid, the Board would not have treated them as illegible because of Regulation 9. It is fair to say that no evidence whatever was called on this point. In this connection I note, as Mr Salter emphasised on a number of occasions, the defendants' position on the pleadings was merely not to admit the claimants' entitlement to legal aid in relation to the action, and, while particulars of the defendants' case on this issue were to be forthcoming if the defendants had a positive case to advance, no particulars have ever been provided. It is right to add that, if I am wrong on this particular point, it would nonetheless not alter my overall conclusion, for reasons which, I hope, will be apparent from the next part of this section of the judgment.
Would the claimants have funded the action themselves?
It appears to me where there are really two questions here. The first question itself has two aspects. They are (1) whether the claimants would have proceeded with the action after the writ had been served on Touche Ross if neither of them had been legally aided, or (2) whether, assuming that John was legally aided and Peter was not and that Peter could not or would not have assigned his cause of action to John, Peter would have proceeded with the action on a privately funded basis. The second question is whether the claimants would have been prepared to continue with the action on a privately funded basis from about June 1994 on the assumption that they would have proceeded with the action on a legally aided basis until that date: that question would arise if I am right in my conclusion that I should proceed on the assumption that the claimants obtained legal aid when they did, but that I am wrong in my conclusion that I should proceed on the assumption that such legal aid should be treated as continuing after they ought to have notified the Board that they were each in receipt of £1000 per month from Sir Ernest in March 1994. I select the date of June 1994 as little more than an informed guess, because it appears to me that there would have been some delay between the claimants informing the Board of these monthly payments by their father, the Board deciding what course it ought to take as a result, and the obvious possibility of discussions between the claimants and the Board before the Board reached its conclusion: my estimate of about three months is essentially based on the case of events in relation to legal aid during 1992/3 as discussed above.
I turn to the first aspect of the first question. If the claimants had not received legal aid, would they have proceeded with the action during 1993 on a privately funded basis? In their respective oral evidence, each of the claimants said that they would have proceeded either way. Furthermore, the claimants not merely issued the present proceedings, but have taken them to a full hearing, on a privately funded basis. Also, Mr Bircham's evidence, albeit that it was based upon what Peter told him, was to the effect that he thought that the claimants would proceed on a privately funded basis. Further, as is clear from his report to the Board, and indeed as he fairly said in evidence, Mr Camillin was giving very optimistic advice as to prospects: an assessment of a chance of more than 80% in a professional negligence action (save where the negligence is plain, such as failure to serve a notice within a specified time limit) is a strikingly optimistic assessment.
Furthermore, although BDO did not express any firm conclusion in their preliminary opinion of 24th February 1993, they identified a number of deficiencies in the Report which certainly would not have detracted from, and in my judgment would have been viewed by the claimants as supporting, Mr Camillin's encouraging assessment. Although counsel instructed by the defendants, Mr Peter Roth, appears to have advised formally only in November 1993, and then in pretty brief terms, he was encouraging (albeit in a very qualified way) on the basis of what he had seen. Thus, in his Advice on the Merits of 30th November 1993, Mr Roth described the Report as "seriously inadequate and incomplete in a number of respects" and he explained that this was based partly on BDO's preliminary opinion, and partly on discussions with a representative of BDO in two earlier conferences. He also described the claimants of having "a good prospect of showing negligent breach of contract". However, it is right to point out that he identified a "real problem" which was "evidential difficulty in establishing the true facts about... Admiral... due to the passage of time and the loss of documents". At the end of the Advice, Mr Roth said this:
"I see no difference on the facts between the claim in contract and in tort. The tort claim is probably statute-barred..."
I consider that Mr Camillin would have been aware of this advice when he communicated his assessment of the prospect of success in the action to the Board on 1st December 1993: it will be recalled that his assessment of the prospects had reduced somewhat, albeit that he was still optimistic, his assessment then being "60 to 80%".
The various factors which I have been considering so far, do, particularly when taken together, provide a powerful basis for supporting the contention that the claimants would have proceeded with the action during 1993 on a privately funded basis, even if they had not obtained legal aid.
However, there is evidence, also fairly strong, pointing to the opposite conclusion. In his evidence, Mr Camillin was quite clear that Peter had told him that, without legal aid, the claimants were not prepared to proceed with the action. Indeed, Mr Camillin said (and I have no reason to doubt this) that he issued the writ on his own initiative and without specific instructions from the claimants, but that he was not prepared to serve the writ without specific instructions. On his evidence, not merely did he receive those instructions almost literally at the last possible moment, but Peter gave those instructions only after it had been intimated to him, albeit informally, that his application for legal aid was likely to be successful. John's application for legal aid of 24th September 1992 included the statement that "I cannot afford to instruct solicitors privately"; precisely the same form of words can be found in Peter's application of 15th October 1992. In support of the defendants' contention on this point, Miss Start further relies on the fact that Peter was contemplating assigning his cause of action to John, if John obtained legal aid and he did not; I do not think that that point takes matters very much further, but I accept that it is of some weight.
I find the question of whether or not the claimants would have instructed the defendants to serve the writ, and whether or not the claimants would have proceeded with the action during 1993 if the writ had been validly served, very difficult to determine. I have reached the conclusion on the first aspect of the final question that the claimants would not have instructed Mr Camillin to serve the writ if neither of them had got legal aid by the last date of service. However, on the second aspect, I consider that they would have given such instructions if John had got legal aid by that date (as he in fact had) but Peter had not. As I have said, by the time that Peter instructed Mr Camillin to serve the writ, it appears that Peter had been led to believe that he would obtain legal aid (as indeed he eventually did). However, I should make it clear that it is my view that, even if Peter had not been led to believe that he would get legal aid, he would still have given instructions to Mr Camillin to serve the writ. In my judgment, he would have given such instructions on the basis that he would then have been in a position either to try and persuade the Board to grant him legal aid or to assign his cause of action to John, so that the action would proceed with John as the sole claimant, or, at worst, Peter would find himself in a position paying half the costs, always knowing that he would have an opportunity to pull out of the action (albeit possibly at some cost) if the prospects looked poor.
In coming to the conclusion that the claimants would not have instructed Mr Camillin to serve the writ if legal aid had been unavailable to each of them, I am primarily influenced by the contemporaneous statements made by each of the claimants to the Board in their respective applications for legal aid, and by what they were said to have told Mr Camillin, who struck me as an honest witness. When the claimants said in evidence that they would have instructed Mr Camillin to serve the writ even if neither of them had had legal aid, I do not think that they were lying: they have convinced themselves of the truth of what they said because they wanted it to be true. They were being given very optimistic advice about their prospects, but it is clear that they were very concerned about the costs implications and also about the counterclaim which they anticipated Touche Ross would be able to bring in respect of the cost of the Report. The advice received from BDO and Mr Roth were given after the final date for service of the writ, and therefore do not seem to me to bear greatly on the issues. So far as Mr Bircham is concerned, I have no doubt that he was telling me the truth as he saw it, but it does not seem to me to be of much real assistance on the issue, other than to emphasise that Peter had a strong sense of grievance against Touche Ross.
I turn to the second question: would the claimants have been prepared to proceed with the action from about May 1994 without legal aid, if they had been legally aided in the action until that date? I find this a particularly difficult question to assess, because, when considering the position, it seems to me that I should not assume that the action was, as it were, stayed between November 1993 (when the writ was served) and June 1994 (when I am assuming that legal aid would have been withdrawn on this hypothesis): the only reason that nothing substantive happened in the action was that Touche Ross were challenging the validity of the service of the writ, and the question I am considering is whether the claimants would have proceed with the action after May 1994 if the writ had been properly served in November 1992. Although certain things were done during 1993 (such as preparation of draft statements for each of the claimants, preparation of the statement of claim, preliminary consideration of the merits etc.) those steps were not steps as between the parties (sc. the claimants and Touche Ross) but were steps internal to the claimants and their advisers. In my judgment, even bearing in mind that the approach to litigation in 1993 was significantly more leisurely than it is today, the action would have proceeded reasonably quickly, not least because of the fact that it would have been already fairly stale, and the parties and their advisers (and indeed the court) would have appreciated the need to bring the matter to a hearing as soon as reasonably possible. I do not think it is necessary for me to decide precisely to what stage the action would have got by June 1994 if the claimants had been legally aided and the writ had been properly served in November 1992, but I am satisfied that pleadings would have been closed, discovery and inspection would have taken place, and BDO and counsel would have been able to give fuller advice on the merits; I believe that the statements of the claimants would have been in a near-final form, and that an expert's report (presumably from someone in BDO) would have been available, albeit in a preliminary draft form.
What I have to consider, therefore, is whether, in those circumstances, the claimants, faced with the withdrawal of legal aid in June 1994, would have been prepared to continue with the action and proceed with it on a privately funded basis. In my judgment, the answer to that question is in the affirmative, always provided that they were being told by Mr Roth, Mr Camillin and BDO that their prospects of success were good. I believe that that would have been the advice the claimants would have been receiving in June 1994 on this hypothesis. That was indeed the advice they were getting (albeit with less information available to the advisers than would have been available on the assumption upon which I am proceeding) in late 1993; I consider that, having seen Mr Camillin in the witness box and read the advice of BDO and Mr Roth, and indeed having seen the expert evidence of the accountants put forward (especially on behalf of the claimants) in these proceedings, that is likely to have been the advice that the claimants would have got from their advisers at the time, even allowing for the fact that further information would have been available to them by mid-1994 on this hypothesis, than was available to them in late 1993 as a matter of fact.
In my judgment, there is a considerable difference between starting proceedings without legal aid, and continuing proceedings without legal aid in circumstances where one has been legally aided (and therefore substantially insulated against costs liability) during the first 18 months. Furthermore, unlike in the period up to and around January 1993, there is no contemporary evidence to suggest that the claimants were unprepared or unable to continue with the action on a privately funded basis in early mid-1994. Additionally, the very reason that legal aid might have been withdrawn in June 1994 was due to the fact that the claimants were better off, and were therefore better able to shoulder the financial burden of funding the action themselves than they were at the end of 1992. I also believe that the fact that the claimants are and have been prepared to undertake the current proceedings without legal aid is more probative of their likely attitude to funding the action in early mid-1994 than as at late 1992.
Before leaving this topic, there is one matter which I should deal with. I have referred to Mr Roth's advice as being optimistic, albeit provisionally so. In this connection, Miss Start relies on Mr Roth's view as recorded in his Advice that the claimants' claim against Touche Ross in tort appeared to be statute-barred. She argues that, if Mr Roth thought that the claim in tort was statute-barred, it must follow that he would have thought that the claim in contract was also statute-barred, and, if that were so, his advice would have been that the action would fail on those grounds. I must confess to some difficulty in understanding what Mr Roth had in mind in the relevant passage in his Advice on this point, which I have quoted. Mr Salter contends that what Mr Roth must have meant was that, if the decision of Judge Rich (which by that time had been given) was overturned, then the claim would be statute-barred. As a matter of language, that seems to me to be a difficult meaning to extract from the words used by Mr Roth. However, I have concluded that it is the correct interpretation, and, indeed, that if it is not the correct interpretation, then Mr Roth made a mistake which he subsequently would have corrected.
It seems to me that Mr Roth cannot have meant that the claim in tort was statute-barred if the writ was validly served. First, it is impossible to see how the claim in tort could be said to have been statute-barred if the writ had been validly served. Secondly, if the claim in tort was statute-barred, the claim in contract would also have been statute-barred, and it would have been pointless to proceed with the action, even to the extent of seeking to uphold the decision of Judge Rich. Mr Roth would have been duty-bound to make that clear to the claimants and, indeed, to the Board. Thirdly, Miss Start's interpretation of Mr Roth's Advice is on this point difficult to reconcile with the earlier part of his Advice, in which he indicates that further investigations should be carried out. Accordingly, while I accept that Miss Start's argument involves giving the words used by Mr Roth their plainly more natural meaning, it results in an interpretation which is effectively nonsensical; Mr Salter's interpretation makes sense, in that it is both consistent with the position in law and consistent with the rest of Mr Roth's Advice. In my view, as happens to any barrister from time to time (and indeed to any Judge) Mr Roth did not express himself on this occasion quite as carefully as he might have done. It is fair to him to add that it seems clear from the evidence of the claimants and of Mr Camillin, that the interpretation supported by Mr Salter is in accordance with how they appeared to have understood the Advice.
Even if this is wrong, and Miss Start is correct in her interpretation of Mr Roth's Advice on this point, it does seem clear that Mr Roth, for some reason or another, believed that the action could succeed in contract, even if it was statute-barred in tort (always assuming that the writ was served in time). Accordingly, even on that basis, the claimants were getting positive advice. If it had been pointed out to Mr Roth that the logic of his conclusion that the action would fail in tort because it was statute-barred would indicate that the same conclusion must apply to the action in contract, then I believe he would have reconsidered the whole matter, and would have come to the conclusion that the claim was not statute-barred in tort (or indeed in contract) always assuming that the decision of Judge Rich was not overturned.
Conclusions on this issue
I would summarise my views on this topic as follows:
1. neither of the claimants was dishonest when he made his respective successful application for legal aid for the action;
2. neither of the claimants artificially arranged his affairs to bring himself within the legal aid criteria in order to obtain legal aid;
3. (a) if neither of the claimants had been initially entitled to legal aid, the action would not have proceeded;
(b) if only one of the claimants had been initially entitled to legal aid, the action would nonetheless have proceeded;
4. (a) if the claimants had appreciated that the £1,000 per month they each received would have deprived them of legal aid, they would not have accepted it; or
(b) either if 4(a) is not right, or if it is right but, in that event, legal aid would still have been withdrawn, the claimants would still have proceeded with the action even if legal aid had been withdrawn in or about June 1994.
The claimants' contention that they had a good, indeed a very good, prospect of establishing breach of duty on the part of Touche Ross in the action, had it proceeded, gives rise to the initial issue of whether the claimants would have established that Touche Ross owed them a duty of care in tort and/or in contract.
The argument that Touche Ross may have owed no tortious duty of care to the claimants was raised only briefly on behalf of the defendants, and formed no part of Miss Start's closing submissions. In my judgment, she was right not to press the point. Whatever other problems might have been faced by the claimants, it seems to me that it would be wrong to proceed on any basis other than that they would have established that they were owed a duty of care in tort by Touche Ross. Not only was the Report addressed to them, but Touche Ross knew the purpose for which it was to be provided, namely to assist the claimants (as well as CIN) in deciding whether to invest money, directly or indirectly, in the Admiral Group. Furthermore, it is clear that the claimants had a number of meetings with representatives of Touche Ross when Admiral and the claimants' potential investment in the Admiral Group, were discussed, even to the extent of Mr McIsaac having been made aware of the fact that the claimants intended to remortgage their houses in order to raise the necessary finance to fund the purchase.
In these circumstances, it is probably academic whether or not Touche Ross also owed the claimants a contractual duty. However, it is right that I should deal with the point as it was agreed fully. In this connection, there are two points taken on behalf of the defendants. First, albeit rather shortly, Miss Start argues that Touche Ross owed no contractual duty to the claimants; secondly, she contends that, even if such a contractual duty was owed, the claimants could not have succeeded on that basis against Touche Ross, because CIN was not joined as a party to the action. In my judgment, both arguments are wrong. Although it is true that the instruction letter does not appear to have been signed by either of the claimants, it seems to have been accepted by all parties in these proceedings in relation to the measure of damages that, if, as a result of the Report or for some other reason, CIN and the claimants had not gone ahead with the purchase of the Admiral shares, then the last paragraph of the instruction letter would have required the claimants to pay Touche Ross the cost of the Report. In my judgment that common assumption is correct: the claimants were meant to have the benefit of, and indeed have at all times claimed the benefit of, the Report, and that Report was prepared pursuant to the instruction letter, and consequently it would not be, or, more accurately, it would not have been, open to the claimants to deny their liability to Touche Ross so far as the costs of the Report were concerned. To my mind that illustrates, indeed emphasises, that the Report was prepared pursuant to a contract between Touche Ross and the claimants.
As to the action not having been properly constituted, the defendants rely on the fact that the Report was commissioned (by the instruction letter) and addressed (in the Touche Ross letter or the Report itself) to CIN and the claimants jointly. Although the definition of the duty owed by Touche Ross to CIN and to the claimants could be described in the same terms and must be subject to the same legal principles, Touche Ross would have appreciated that CIN and the claimants were investing in Fortbrave (or, more importantly, in the Admiral Group, albeit indirectly) pursuant to the same overall transaction with Mr Geminder, Touche Ross would also have realised that each of them was investing his own money and acquiring separate shares. There was no question of a joint investment. Further, the nature of the investment to be effected by CIN was somewhat different from that of the claimants: CIN's shares were to rank ahead of those of the claimants. That point is illustrated, and indeed the unattractiveness of the defendants' argument on this point is also illustrated, by the fact that it at one time seemed that, unlike the claimants, CIN may not have lost any money at all on the whole venture. In fact, it is fair to say that, although Mr Burgess was unable to give a definite answer on the point, it seems to me likely that CIN did lose money, albeit only a fraction of its total investment in the venture, and quite possibly only because it advanced further money to Fortbrave after it had appreciated that the Admiral Group was not as promising an investment as it had seemed, and after it had seen the Review. In those circumstances, CIN may well have been in difficulties in establishing that it had suffered substantial (or indeed any) damage even if it established that the Report had been negligent and that CIN had relied on it. It would require clear and binding authority to persuade me that the law is such as to require a co-investor, such as CIN, who may have suffered no damage but to whom the allegedly negligent Report was also directed, to be joined in an action by another investor who claims that he has suffered a loss as a result of investing in reliance on the negligent Report, before that other investor could claim in contract.
I should also remark that it is rather unattractive for the defendants to contend that an action in which they acted as solicitors to the claimants would have been bound to fail, because they had not advised that it would have been procedurally necessary to join another party to those proceedings. On the face of it, the defendants would be relying on their own failure to give proper advice to the claimants as justification for their argument that the claimants have no case against them. In my judgment, quite apart from the fact that the point is a bad one, it seems to me that, if it had been necessary to join CIN and the defendants had so advised, then the claimants would have joined CIN, with two possible consequences. Either CIN would not have wanted to pursue Touche Ross, in which case they would have remained no more than a nominal party, save for the purpose of giving discovery: that would not have been a significant deterrent to the claimants, as very little in the way of extra costs would have been involved. Alternatively, CIN would have felt that, given that they were a party to the action, they might as well join with the claimants in suing Touche Ross, which would have given the claimants the added benefit, and Touche Ross the added disadvantage, of another person claiming damages against Touche Ross in reliance on the contention that the Report had been negligently prepared. Accordingly, even if it would have been necessary to join CIN to the action if the claimants were to have succeeded on a claim in contract against Touche Ross, I do not consider that that would assist the defendants: the defendants would be relying on their own wrong in failing to advise the claimants to join CIN, and, if the claimants would otherwise have proceeded with the action, I do not think that the need to join CIN would have dissuaded them from proceeding.
Accordingly, it appears to me that I should proceed on the basis that the claimants would (and not merely might) have established that Touche Ross owed them a duty of care in tort and also, although I am doubtful as to whether it adds anything, a duty of care in contract. The extent of the duty, whether in tort or in contract, is not in dispute: it is a duty to give all such advice and do all such things as a competent and reasonable accountant would have done given in the particular circumstances of the case.
So far as breach of duty is concerned, the claimants say that they would have established that Touche Ross were in breach of duty in the action. In this connection, there are two aspects of the claimants' case namely the Report itself and the "no deal breakers" advice allegedly given by Mr Morris ("the assurances").
The Report: General
In connection with this part of the case, it is, I think, worth repeating that, although I heard a great deal of factual and expert evidence on this topic, it is by no means necessarily my function to decide whether or not Touche Ross were negligent, or even whether, had the action proceeded to trial, the court would have concluded that Touche Ross were negligent, in connection with the preparation of the Report. What I am primarily concerned with establishing is whether the claimants would have had a real prospect of establishing that Touche Ross were negligent. However, the nature of the evidence and the extent of the dispute between the parties has been such that it is necessary to consider the matter in some depth. So far as the Report is concerned, there was evidence from two experts and over two and a half days of oral evidence from those experts; I also heard from Mr McIsaac, still a partner with, and Mr Morris, formerly employed by, Touche Ross, in addition to which the Report was discussed during cross examination of the claimants. As establishing a breach of duty against Touche Ross would have been arguably the main issue in the action, it is plainly necessary to consider the evidence and arguments in connection with that alleged breach of duty in order to decide whether the claimants' case on that issue would have been so weak or so strong as to give no damages or to apply no discount, as the case may be, or whether their case would have stood a real, but not certain, chance of success, in which event it would be necessary to decide what the discount attributable to the uncertainty on this issue should be.
The claimants and the defendants each called an independent chartered accountant to support their respective contentions in connection with the alleged negligence of the Report and, indeed, in relation to the alleged assurances. The claimants called Mr Clinton Taylor a partner in Baker Tilly, the defendants Mr Joel Israelsohn a partner in Grant Thornton. It is frequently inherent in accountants' negligence actions that each expert has to go into the question of the alleged negligence in some detail, because, particularly in the context of an accountant's report on a business, there may be a large number of aspects of the report which are at least arguably susceptible to criticism. This case was no exception. To identify, discuss, and reach (even provisionally) a conclusion on, every one of the allegations of negligence raised on behalf of the claimants would seem to me to be indefensible in terms of adding to what is already a very lengthy judgment and in terms of the time it would take up: at least 35 separate heads of alleged negligence were identified by Mr Salter in his written opening submissions, and it did not appear that any of them was abandoned in his closing submissions. Indeed, it could easily be said that the number of allegations was expanded as the hearing progressed (depending on the extent to which one treats an allegation which could be said to have more than one facet as constituting more than one allegation). On the other hand, for me simply to express a view in the most general terms as to the extent, if any, to which Touche Ross would have been likely to have been held to be negligent in the action also appears to me to be inappropriate. Even though this is a "loss of a chance" case, I have heard and seen fairly detailed expert and factual evidence, and have heard fairly detailed argument. The documentary evidence was certainly, the oral evidence of fact was almost certainly, and the expert evidence as a consequence was certainly, not as extensive as it respectively would have been to the court hearing the action. However, in my view, the documentary and oral evidence was undoubtedly more than enough to justify my taking a detailed view of allegations of negligence.
Furthermore, at least on one view, the claimants' case against Touche Ross in the action might have been based on the contention that there were a significant number of items of negligence. On that basis, while many of those items, taken on their own, might be held to be insufficient to establish a degree of negligence which would have assisted the claimants in establishing that, had such negligence not occurred, the claimants would not have gone ahead with the acquisition of the Admiral shares, the totality of those items taken together might nonetheless establish such a conclusion.
Mr Taylor and Mr Israelsohn very helpfully prepared a table containing "points of agreement", "points of near agreement" (which Mr Israelsohn said "really meant that there was a difference of emphasis") and "points at issue". One important point as to the extent of Touche Ross's understanding of their role, was described as a "point of near agreement", although I believe it was a point upon which any difference between the experts was virtually non-existent. Mr Taylor considered that, as investigating accountants, Touche Ross should have understood that their role was not merely to compile information, but also to interpret it to CIN and the claimants. While Mr Israelsohn did not consider that this applied to every investigating accountant, he accepted that, in light of the terms of the instruction letter, Touche Ross "could not have been under any illusion that they should merely compile information". In this connection, Mr Israelsohn accepted that the instruction letter required Touche Ross to review and to comment on the methods used by the Admiral Group for valuing stock, and that, while they appear to have carried out some sort of review judging from their working papers, they failed to comment, as requested in the Report or, so far as the evidence before me is concerned at any rate, in any other document or in any conversation.
Another point that should be mentioned is that, effectively agreeing with Mr Taylor, Mr Israelsohn accepted that when evaluating information from AISG considerable care would have had to have been exercised by Touche Ross. He also agreed they should have looked for corroboration, in particular in relation to any statements made to them by Mr Geminder, bearing in mind that he was a "canny vendor".
I consider that the best way of dealing with the evidence on this issue is as follows. I shall first discuss the summary of criticisms of Touche Ross put forward by Mr Taylor in his Report, and how he impressed me as a witness. I shall then deal with the criticisms of Touche Ross as put to and dealt with by Mr Israelsohn in his cross examination. I shall then turn to the general criticisms which each expert made orally of Touche Ross. Finally, I will deal with my conclusion on this issue.
Mr Taylor's written criticisms
First, Mr Taylor said that it was not sufficient for Touche Ross to state that they had not verified any of the information provided in the Report: he said that it was incumbent on them to carry out a comprehensive investigation, and, in any event, to make it clear if they had any serious doubts as to the reliability of the accountancy information, and in saying this he said that he did not overlook the qualifications and experience of the claimants and of CIN. In particular, Mr Taylor considered that reading the Report suggested that Touche Ross did not have a proper understanding of the Admiral Group's business. He also took the view that they had failed to review and comment adequately on past trading results, and in particular on the declining performance since 1984 notwithstanding the increase in turnover and gross margins in subsequent years.
Mr Taylor was also of the view that the increase in working capital between 1985 and 1986, which had been funded by an increase in overdraft and trade creditors, should have alerted Touche Ross to the possibility of bad debts and slow moving or obsolete stock; similarly, the lengthening of the stock turnover period should have alerted Touche Ross to the same problem.
Mr Taylor also thought that Touche Ross should have provided an explanation as to why supplier statements were not available. Mr Taylor further took the view that, while Touche Ross did provide commentary on the major assumptions in the balance sheet projections for the five year period to 30th September 1991 and carried out a sensitivity analysis, they wrongly failed to comment on the analysis, to give a view on the viability of the forecast, or to comment on the proposed capital structure and potential cash generation. Mr Taylor also criticised Touche Ross for failing to consider the implications of terminating the arrangements with GBS and MGF. He further thought that, on the basis of the information available to Touche Ross, they should have appreciated that the Admiral business would be underfunded on the claimants' proposals, and that they should have advised CIN and the claimants accordingly. Another potentially important point, in my judgment, made by Mr Taylor was that "Touche Ross should, at the very least, have concluded that the information provided was inadequate or sufficiently unreliable to preclude an informed opinion on the trading performance of the Admiral Group to 30th June 1986 or the viability of the forecast".
Miss Start's cross examination of Mr Taylor was effective in the sense that it did establish, to my mind, that he was partisan to an extent, and that, at least in one or two respects, he could fairly be criticised for not having checked some of his calculations as carefully as he ought to have done. Thus, I thought that she showed that some of his criticisms of Touche Ross (not including any of those I have set out above) were illogical, ill thought out or ultimately a matter of judgment rather than anything else. She also identified a number of mistakes (of an arithmetical nature) in his evidence. Nonetheless, overall, it seemed to me that Mr Taylor was a reasonably credible witness and that the various criticisms I have tried to summarise from his written evidence were criticisms which the court hearing the action could very well have accepted, subject to any other evidence.
The Report: principal points put to Mr Israelsohn
I believe that it is clear, and Mr Israelsohn appeared ultimately to accept, that in the acquisition plan prepared by John, and upon which Touche Ross were instructed to advise, the view expressed that the Admiral Group had "strong gross margins that can be maintained" was an important element in the future projections, and that this not only involved strong margins being enjoyed in the future but it assumed that strong margins existed at the time. In this connection, however, there was a difference of opinion between the expert witnesses as to the extent, if any, to which Touche Ross could be said, at least on the evidence available, to have been negligent.
Although Mr Israelsohn said that a table, in Appendix B5 to the Report, showing the monthly trend of sales for AISG between January 1985 and June 1986 "spoke for itself", he was prepared to agree that "it would have been possible to write a few paragraphs commenting on the figures". He went on to say that observation was similar in nature to the example he had given "about presenting a lot of the information about the problem debtors but not actually going to draw the conclusion". I got the clear impression that he (like Mr Taylor) would have included significantly more information on both those aspects, if he had been in Touche Ross's position. Having said that, and while Mr Taylor took a different view, Mr Israelsohn, as I understood his evidence, did not regard Touche Ross as acting below the appropriate standards in failing to give such information. However, the reason Mr Israelsohn put forward as to why Touche Ross may not have provided this information, as he himself fairly said, does not appear to be the reason that Touche Ross would have put forward. Mr Israelsohn did not appear to me to have any satisfactory answer to Mr Salter's question as to why Touche Ross could not have explained the effect of the trend as shown in Appendix B5, while stating that they had to make allowance for certain factors, which could have been spelt out and explained as being imponderable or hard to assess.
Mr Israelsohn also agreed that an analysis of orders received by AISG by product and delivery dates would have been useful information which Touche Ross could have provided. While Mr Israelsohn did not say so expressly, I was left with the pretty clear impression that it was something which he would have provided if he had been instructed to produce the Report.
Having agreed that working capital was "one of a number of important factors" Mr Israelsohn accepted that it had not been included as a variable in the Sensitivity Analysis carried out in the Report. While he was not prepared to accept that the question of working capital was not considered in sufficient depth in the Report, as Mr Taylor said, Mr Israelsohn did accept that it was not discussed or apparently considered by Touche Ross in the Report with the same care as in the Review.
Mr Israelsohn accepted that he would have expected Touche Ross to comment in the Report on AISG's order books, not least because it would show the date of delivery. This may well have been a point of importance, because there is some evidence to suggest that the order book may have shown very little, if anything, by way of orders for 1986. Because the order book was not available for these proceedings, it is obviously not possible to express a concluded view as to what the Report would have said if the order book had been inspected (as it may have been) and commented on by Touche Ross. It could, as I say, have been very important both in terms of what its contents directly conveyed to the claimants and CIN, and in light of what it may have caused Touche Ross to say.
The absence of relevant contemporary papers obviously makes it difficult to judge the fairness of Mr Taylor's criticism of Touche Ross that they should have taken proper steps to investigate the order book, and, similarly, to investigate the absence of a bad debt provision in AISG's accounts: Mr Israelsohn understandably took the view that this was not something upon which he could comment in the absence of having seen the relevant contemporaneous Touche Ross papers. All I can say is that, if there were relevant working papers which one could see, or if there was a relevant explanation from, for instance, Mr Brookes, then there might be nothing in this criticism, but, in the absence of any relevant documents or oral evidence, it seems to me to be right, and indeed to have been implicit in the way in which Mr Israelsohn dealt with the point in his written and oral evidence, that there is no evidence available in the proceedings to suggest that the criticism is not justified. However, it may well be that evidence to that effect would have been produced in the action.
Mr Taylor considered that Touche Ross were negligent in failing to report that they had carried out inquiries and indeed may well have been negligent in having failed to carry out inquiries, as to why supply statements were not available. Mr Israelsohn considered that such information and investigation would not have been within Touche Ross's remit. On the basis of the evidence as available to me, it seems to me that that is a point upon which the court could have gone either way in the action. As to whether Touche Ross carried out the inquiries in question that is a matter which could well have been resolved by reference to evidence available in the action, but not in these proceedings.
Another point, albeit not of itself a major one, upon which the absence of the Touche Ross papers appears to me to be possibly crucial is Touche Ross's statement that certain debts need not be of concern because they were "covered by avalised drafts": while Mr Israelsohn said, perfectly understandably, that this is not the sort of thing which Touche Ross would have said unless it had been true, he accepted that they might have based this statement on what they were told by Mr Geminder, and, in those circumstances, as I see it, it may well be that Touche Ross could have been open to the criticism that they should have checked on that source of information.
The gross margins reported by Touche Ross in the Report were based upon what they were told by Mr Geminder, and, at least so far as the available papers show, there is nothing to suggest that Touche Ross checked on these figures, and, if they did so, there is nothing to indicate what checks they did or what the results of their check was. As was accepted by Mr Israelsohn, the picture painted by Touche Ross in the Review was fuller and different. So far as I can see, there is no obvious reason why Touche Ross could not have carried out and provided the same, more satisfactory, exercise and explanation respectively when they prepared the Report. Again, the absence of papers and witnesses, which would have been available in the action, means that it is plainly inappropriate for me to come to a concluded view on this.
Another aspect upon which Touche Ross were said by Mr Taylor to have been deficient in so far as the Report is concerned was the failure to comment on declining trends. Mr Israelsohn did not accept that that was a fair criticism, but it appears to me that there would have been a real prospect of the court accepting Mr Taylor's opinion.
The Report: the experts' principal criticisms
As I have mentioned, Mr Taylor and Mr Israelsohn were each asked when giving oral evidence to put forward their main criticisms of Touche Ross, in connection with the preparation of the Report.
Mr Taylor's principal criticism of Touche Ross was a general one; he said that their functions were; (1) to obtain relevant information; (2) to review that information; (3) to identify "variances of discrepancies that appear unusual"; (4) to request explanations of those variations; (5) to consider any such explanations, and (6) if the explanations do "not appear valid, then [to] seek corroboration". Mr Taylor said that Touche Ross failed on the last two stages, because "they requested explanations, they heard the explanations and accepted it" and, at least in relation to some matters, they should not have accepted the explanations they received, and should have sought corroboration.
Mr Taylor's second principal criticism was that Touche Ross "did not analyse or interpret the information in the manner that I believe a reasonably competent accountant ought to have done" and he identified this failure as applying principally to the analysis of AISG's margins, its sales mix and to the obsolescence of its stock. These three matters were, he said, "fundamental" to the exercise that Touche Ross were carrying out pursuant to the Instruction letter.
Mr Taylor's third major criticism was "a lack of partner involvement in the exercise". He suggested, on the basis of the documents he had seen, that this meant that the Touche Ross investigation got "bogged down in detail" and that more control from a partner was needed in order to "pull the strings together" as he put it. Although it is right to record that, albeit on the limited evidence I have heard, it seems to me that the court hearing the action may well have thought that this third criticism was justified, it is more of an explanation as to why the Report may have been negligent (if it was) than a ground of negligence in itself. It does appear from the evidence of Mr McIsaac and from the documents recording the hours spent on the Report by Touche Ross personnel, that there may well have been either a surprisingly small amount of partner's time involved in the whole exercise, or else (possibly through oversight) a failure to record many of the hours put in by partners. However, because not all the Touche Ross documentation is available, and because I did not hear from witnesses who, I am reasonably confident, would have been called in the action (in particular Mr Brookes and Mr Jones), it would not be appropriate for me to express a concluded view on this. For instance, Mr Brookes may have been able to say that significantly more time was put in by the partners than appears from the evidence available to me, or else he, or others, may establish that, although not a partner, Mr Brookes was sufficiently experienced or qualified not to need any significant supervision.
When Mr Israelsohn was asked to identify the most serious criticisms which he considered could be levelled against Touche Ross, he said that he found the point difficult. The Touche Ross working papers which were available on some aspects, for instance in relation to attendance on the two stock takes, were sufficiently full to enable him to form the view that Touche Ross had "approached those areas of work competently". However, he explained that the problem as he saw it was that "the working papers filed in relation to so many other areas of their work are missing and I can't therefore see if the same standard [as applied to stock take attendance] would have applied to those other areas". In this connection, Mr Israelsohn emphasised that he regarded a review of such working papers "as important in my assessment as to whether [Touche Ross's work can be criticised or not]". I mention this evidence in a little detail, because it seems to me that it provides a strong, but obviously not of itself necessarily decisive, indicator as to whether I should attempt to determine whether or not Touche Ross were negligent, or whether I should not determine that question, but approach the issue by assessing loss of a chance.
With that understandable and important caveat, Mr Israelsohn then went on to identify what he thought might be the main areas of criticism of Touche Ross. First he identified their apparent attitude to the absence of management accounts for AISG. He explained that it seemed clear to him from the instruction letter that it was anticipated that management accounts would be available, particularly as Touche Ross were required to consider whether the profit for the current period was not materially mis-stated (which he described as "an important element of their instructions"). He said that Touche Ross should have gone to CIN (and therefore, as I see it, also to the claimants) and told them about the absence of a proper management accounts. He said that they should have suggested that they, Touche Ross, should wait until management accounts had been prepared or that they should be invited to prepare management accounts, or that the whole question of their role should be reconsidered. Mr Israelsohn indicated that it was by no means clear from the evidence whether or not Touche Ross had appreciated the seriousness of the problem (at least on Mr Israelsohn's view) and whether or not they had approached CIN or the claimants with any such recommended action.
It is obviously possible, indeed very likely, that at least some further evidence which could throw light on those questions would have been available to the court hearing the action. However, on the evidence available, I take the view that in light of Mr Israelsohn's assessment and on the basis of the evidence currently available, it is more likely than not that Touche Ross failed fully to appreciate the importance of the absence of proper management accounts (if Mr Israelsohn's view is correct) and also that they did not explain the significance of the absence of such accounts to CIN or to the claimants. There is no documentary evidence, and there has been no oral evidence, which in any way directly suggests that Touche Ross dealt with the absence of management accounts other than in the Report. It is fair to Touche Ross to say that they did draw attention to the absence of management accounts, but, on the basis of Mr Israelsohn's views and the evidence available to me, it appears to me that the claimants would have had a fairly strong argument for saying that Touche Ross should have made significantly more of the point to CIN and the claimants, and probably should have done so well before even the draft Report was prepared. It is also right to say that, despite this criticism (and indeed his other criticisms), Mr Israelsohn adhered to his view that Touche Ross were not negligent.
Mr Israelsohn's second main criticism was that, although the Report identified and addressed all the main issues that it should have identified and addressed, there were "a few loose ends" which, as he put it, he would like to think that he would have sorted out if he had been responsible for the Report. If he had been the partner in charge of the operation, having seen in the draft report that there were "numerous problems" in relation to the list of debts and their recoverability, for instance, he would have informed his staff to follow it up by investigating the provisions and the appropriate response. As he himself said, this criticism could be said to tie in with (and, I add, to be rendered more significant by) his first criticism, namely the arguable failure of Touche Ross to give sufficient importance to the absence of management accounts. It also appears to me that this second criticism identified by Mr Israelsohn is pretty similar to the first criticism put forward by Mr Taylor.
The Report: conclusions
The overall effect of the written and oral evidence of Mr Taylor and Mr Israelsohn (together with the other evidence available), to my mind, is that the claimants stood a significantly, but not enormously, better than evens chance of establishing a sufficient degree of negligence on the part of Touche Ross in relation to the preparation of the Report such that (assuming that they would have established reasonable reliance on the Report) the claimants would not have gone ahead with the acquisition of the Admiral shares had the Report not been negligent.
I proceed on the basis that the main points the claimants would have made in the action would have been the various criticisms which I have discussed in the earlier parts of this section of the judgment. There are thus a fair number of criticisms which could have been raised. On the basis of the documentary and oral factual evidence I have seen and heard, it seems to me that, in light of the expert evidence, the claimants would have stood a real chance of making out each of these criticisms. Mr Taylor's evidence, which was credible at least on the basis of the factual evidence available in this case, was that all these criticisms were justified. Mr Israelsohn appeared to me to accept that, again in light of the available factual evidence, at least some of the criticisms - indeed, I think, a substantial proportion of them - may have been justified.
Of course, criticisms, even if fairly made, do not equate automatically to negligence. In my judgment, however, some of the criticisms (if made out) would have amounted to negligence on their own (e.g. failure to investigate and advise on the absence of management accounts, failure to investigate and/or properly report on the absence of supply statements, failure to analyse margins, sales mix, and obsolescence). Other criticisms (if made out) may not have been negligent on their own but, taken together with each other and the more major criticisms, they would have assisted the claimants' case on negligence. The claimants' prospects on establishing negligence would obviously have been assisted by the fact that both experts agreed that Touche Ross should have exercised particular care in preparing the Report, and that Touche Ross were not mere compilers of information.
The nature of the alleged negligence (if established) would have been such that the claimants would, in my judgment, have had little difficulty in establishing that, in its absence, the acquisition would not have proceeded (subject to what I say in the next section of this judgment on reliance). The problems which (on this hypothesis) the Report would have revealed would, in my view, have put off the claimants, and indeed CIN, from proceeding with the acquisition.
Mr Taylor, who was quite a good witness, was clearly of the view that Touche Ross were negligent in a number of aspects at least on the basis of the evidence available to him. Mr Israelsohn, who struck me as an even better witness on this occasion, was more equivocal. While I think that he was ultimately of the view that, on the basis of the evidence he had seen, Touche Ross were not negligent, it appeared to me clear that he accepted that the available evidence was insufficient to enable him to reach anything like a firm or conclusive view on this issue. He also, at least on the basis of my assessment, considered that, in the absence of further factual evidence, there were real grounds for a respectable professional conclusion that Touche Ross were negligent.
I derive some comfort in reaching this conclusion from one or two other factors which I have not so far mentioned in this connection. First, there is Mr Camillin's communication to the Board of his assessment of the claimants' prospects. He told the Board that he thought that the claimants had an 80+% chance, which he subsequently reduced somewhat to a 60-80%, of recovering over £100,000 each. Secondly, there are the views (albeit provisional and qualified) of BDO, as recorded by Mr Roth, and indeed as reflected in Mr Camillin's later (and, indeed, possibly, his earlier) assessment of the prospects.
Further, while it would be wrong to place too much weight on their evidence in all fairness, it seemed to me that the conclusion I have reached is consistent with the evidence of the other accountants who were witnesses in the proceedings. Thus, Mr McIsaac, who, not surprisingly, had very little recollection of the matter, nonetheless did not appear to me to quarrel with some of the criticisms of Touche Ross contained in Mr Taylor's report, when they were put to him in cross examination by Mr Salter. Mr Morris did not have a very clear recollection of matters either, but nothing in his evidence appears to me to have been inconsistent with the conclusion I have reached. It is interesting to note that he said that he considered that Touche Ross had been instructed to carry out what is known in the accounting and business worlds as a "quick and dirty job", which would have involved a standard significantly lower than that which Mr Taylor and Mr Israelsohn (and indeed Mr McIsaac) believed would have been appropriate. Given that Mr Morris was involved in the preparation of the Report, this observation may (and I put it no higher than that bearing in mind that over 12 years had elapsed by the time he gave his evidence) be some indication of a basis of a possible negligence argument.
I also heard evidence from Mr Taiano of Nyman Libson Paul, the Admiral Group's auditors at the time, who said that he recalled that Touche Ross "actually enquired very little of me as an auditor as to the future prospects of AISG" and that, although he could not recall the details, he recalls in general that there were deficiencies in the Admiral Group which Touche Ross did not discover. In fairness to the defendants, it should be emphasised that Mr Taiano could not provide particulars of these observations, which were of a very general nature indeed, and that I do not rest my decision upon them. However, particularly bearing in mind that I think it right to determine the question of negligence not one way or the other, but by reference to a percentage prospect of success, it is fair to say that I derive a small degree of comfort from these observations.
Additionally, at least on the face of it, it is surprising, and not helpful to Touche Ross in the action, that what Mr Potter told the claimants and indeed, instructed Mr Brookes in the Touche Ross internal memorandum of 15th September 1996, namely that Touche Ross would "pull.. all those pieces together in one section in the front of the Report to clearly identify those areas affected" was not done. While that may not have been negligent in itself, the failure to comply with that instruction, which was communicated by a partner not only to an employee, but was also to one of the clients, could be said to cast doubt on the efficiency and competence with which Touche Ross prepared the Report generally. It could also be said to tie in both with Mr Taylor's criticism of poor presentation, which was not really challenged by Mr Israelsohn, and with the apparently rather limited partners involvement devoted to the exercise.
It will, I hope, be clear from the earlier discussion in this section of the judgment, why I consider that it would be inappropriate to make a firm finding one way or the other as to whether or not negligence, and in particular a sufficient degree of negligence, would have been established by the claimants against Touche Ross in the action. It is quite clear to me from the evidence of Mr McIsaac, Mr Morris, Mr Taylor and Mr Israelsohn that there would have been many documents (and in particular Touche Ross's working papers) which would very probably have been available in the action, but which were not available in the proceedings before me. It is equally clear from their evidence, above all that of Mr Israelsohn, that many of those documents could have played a substantial, even vital, part in establishing more clearly whether or not Touche Ross were negligent in many of the alleged respects. While the evidence on what happened to Touche Ross's documents was fairly slight, it seems to me that the effect of what Mr McIsaac told me (coupled with what one would expect from a professional firm of accountants) amounts to this. Touche Ross would have kept all their relevant papers relating to the preparation of the Report until the six year limitation period for a claim against them expired. Therefore I believe that it is more likely than not that, had the writ been validly served, many more relevant papers would have been available in the action than have been made available in these proceedings. Additionally, I think it highly likely that Mr Brookes and Mr Jones (and possibly other people who were employed by Touche Ross in relation to the Admiral Group investigation) would have given evidence in the action.
The assurances: introductory
I now turn to the "no deal breakers" or "assurances" (as I will call them) issue. When going through the history in the second section of this judgment, I mentioned the two occasions in September 1996 upon which Mr Morris was alleged (on the first occasion by Peter, and on the second occasion by both claimants) to have given the assurances. The first occasion was on 4th September, the day before the draft Report was produced, and the second occasion was on 22nd September, some four days after the final version of the Report was produced. Although it could be argued that it is my function to decide whether or not the claimants were telling the truth on this issue, I do not believe that that is by any means necessarily the right approach in these proceedings. The discussion, in the fourth section of this judgment, as to the principles applicable to a case such as this indicate that, when considering the outcome of the action which the claimant has been deprived of the opportunity to bring, unless satisfied that the action would have been so weak or so strong that no damages should be awarded or that no discount should be applied, the court should assess the "value" of the action of which the claimant has been deprived. It seems to me that, in a case such as the present where the action would involve more than one issue, the principle should be carried through to each such issue, particularly where, as here, the parties have proceeded on the basis of analysing each issue, rather than making a global assessment of the prospects of the action as a whole.
I consider that this approach should also apply to the question of whether the claimants would have established in the action that the assurances were given. In my judgment, I should decide (1) whether they would, (2) whether they would not, or (3) whether, they might well, have done so; if I decide on (3) then I would have to assess the prospects in percentage terms. Having heard the evidence of Mr Morris as well as of the claimants on this issue, I should be significantly more ready to make finding (1) or (2) than if the case had not been examined in such detail, but that does not alter my view as to the applicable principles.
That this is the right approach is supported by the fact that it is common ground that, as I have just been discussing, unless it is clear to me that Touche Ross were or were not negligent, I should not reach a conclusion on that point as I would have been required if I was trying the action, but I should merely decide whether the claimants had no more or no less than a reasonable prospect of establishing negligence against Touche Ross, and then decide what discount the particular prospect justifies. So, too, at least as I see it, with the issue of the assurances: unless, after hearing the evidence, I am satisfied that Mr Morris did, or did not, on either or both of the two occasions alleged by the claimants, give the assurances, then what I should do is to assess the prospect which the claimants would have had of establishing that they were given, and what sort of prospect they would have of establishing that it assisted them in their contention that Touche Ross were thereby in breach of their duty.
At first sight, it may be said that, because the question of whether the assurances were given is a question of pure fact, it falls within the category of issues which the court, even in a "loss of a chance case", should determine - see e.g. per Lord Reid in Davies -v- Taylor. However, on analysis, I am not concerned with whether the assurances were given or not, but with whether the court hearing the action would have found that the assurances were given. By the same token, whether or not Touche Ross were negligent in preparing the Report can be said to be a question of past fact; yet, unless clear in my mind, I should not determine that issue, and indeed I have not determined it.
Not only does that appear to me to be right in principle, but it also seems a sensible result. Like many claims where the loss of a chance is loss of an opportunity to bring proceedings, the claimants in this case have lost the opportunity to bring the action because it was barred by limitation. One of the reasons for imposing a time-bar on the bringing of proceedings is that memories fade, relevant participants die or disappear, and documents get lost. Here the gap between the likely date of the trial of the action and the actual hearing is around three years; in the context of events which took place some thirteen years ago that is a significant, but not a very substantial, difference. Further, assessing what was said by an individual who would have been a former employee of one of the parties to the action is not necessarily the same as assessing what was said by a former employee of someone not involved in the proceedings. It seems to me that in those circumstances it is understandable, indeed sensible, that the court should not be required positively to decide whether a crucial statement was made by an employee of the person who would have been the defendant in the action unless, of course, on the basis of all the evidence and argument available, the court feels that it can fairly have a definitive view on the subject. However, as the point could well turn out to be a relatively simple question of fact on which evidence was given by all those directly involved, I accept that the court should be more ready to determine it than a more complex issue such as whether Touche Ross were negligent in the preparation of the Report.
In the present case, following the guidance given by Stuart-Smith LJ in Allied Maples, it appears to me that I have to engage in a two stage process. The first stage is to consider whether the claimants would have pleaded, would have alleged in their witness statements and would have said on oath in the witness box that Mr Morris had, on the two occasions, given the assurances. If the answer to that question is in the negative, then that is the end of the matter; if the answer is in the affirmative, then I have to consider whether it is very unlikely indeed, very likely indeed, or quite possible, that the claimants' evidence would have been accepted. In other words, if the claimants establish on the balance of probabilities that they would have made and maintained the allegation, I then have to consider the matter on a "loss of chance" basis.
In my judgment, this analysis is correct, subject to one qualification which, in many cases, I suspect is academic. It seems to me that if I were to form the view that the claimants were deliberately misleading the court on this issue, then it would be quite inappropriate to take into account any possibility whatever in their favour of their evidence on the assurances in the action. As a matter of policy, I consider that the court should certainly have no truck with a claimant who, in effect, says that his prospects of succeeding the action of which he has been deprived would have been greater because he would have been prepared to tell lies. The reason I believe that qualification to be largely academic is that, if the court came to such a conclusion, it would also form the view that the claimant would have had no real prospect of being believed on that particular evidence.
Accordingly, there are three questions at this stage, namely (1) whether the claimants would have given this evidence, (2) whether there would have been a reasonable chance of their being believed (or, indeed, a virtually certain chance of their being believed or disbelieved) and (3) whether their evidence on this issue was dishonest.
So far as the first question is concerned, I do not understand Miss Start to challenge the contention that the claimants would have maintained their case that Mr Morris gave the assurances on the two occasions. Given that the claimants have maintained their evidence (subject to changes of detail, albeit important and significant detail) on this issue throughout the present case, to the extent of pleading it, including it in their witness statements, and maintaining it in the witness box, Miss Start was, in my judgment, right not to contest that issue.
The assurances: were they given?
The second and third issues can be conveniently considered together. So far as the oral evidence was concerned, the claimants (Peter with reference to both alleged occasions and John with reference only to the second of the alleged occasions) were consistent in their evidence that the assurances were given. Mr Morris was more circumspect, in that he could not be "totally" sure that the first conversation "did not occur" although he did not "imagine" that he would have said anything as categoric as the claimants suggest. Additionally, he said that it was not (and indeed is not) his practice to have lunch time meetings with clients in public houses. Again, although he was not positive, he said that it was "particularly unlikely" that he would have given the assurances on 22nd September: he had just returned from holiday that day, and he said that he would probably have not have had an opportunity to read the final version of the Report.
Overall, my impression of Mr Morris was that he was a reliable witness, although his memory of the events of 1986 is, unsurprisingly, not very good at all. I am satisfied that he does not believe that he gave the alleged assurance on either occasion. However, he holds that view essentially because it is not the sort of thing he thinks he would have done, and because he also thinks it unlikely bearing in mind the surrounding circumstances. He is quite properly unable to be categoric about it. It should also be mentioned that it would seem from a document he prepared at the time that the expression "no deal breakers" was one which he may have used.
Each of the claimants was, as I have said, consistently firm in his respective evidence that (in Peter's case) the assurances were given, and (in John's case) that the second of the assurances was given, as alleged. As I have already implied, Peter was not a particularly good witness: he tended to be argumentative, somewhat querulous, and clearly under tension. However, that is by no means indicative of dishonesty, and, as I have also remarked, his time in the witness box was particularly difficult, due to the wide ranging nature of the evidence he had to give, the extent to which it was challenged, the unusual circumstances (due to the unfortunate ill-health and withdrawal of leading counsel for the defendants) and because Peter finds the events of 1986 and 1987, even after the passage of time, fairly traumatic to recall. John had a much less difficult time in the witness box, and I thought him generally an honest witness, but, as I have mentioned, I do not think he was wrong (albeit not deliberately lying) when he said that he had discussed his means with Mr Camillin. However, the fact that a witness does not tell the truth on a particular issue by no means necessarily leads to the conclusion that his evidence should be rejected where it is in conflict or potential conflict with that of another witness. Nonetheless, such a finding obviously means that one has to look at his evidence with particular care.
Both Mr Salter and Miss Start understandably rely on the history of the claimants' case that the assurances were given. The first written record of Mr Morris having said that there were "no deal breakers" is to be found in the Novel, which seems to have been written in late 1987/early 1988. On the one hand, that can be said to show a consistent picture from over ten years ago, and less than two years after the alleged conversation; on the other hand, it can fairly be said that the Novel records the assurance having been given to John (apparently on his own, whereas the claimants' evidence now is of course that it was said once to Peter alone and then once Peter and John). Given that the Novel is partly fictional, it could well be that Peter invented the statement for the purposes of his Novel, and has since convinced himself and John that the representation was made, or he and John have thought it a good idea to convert fiction into fact for the purpose of these proceedings (or possibly for the purpose of the action). It is equally possible that the assurances were given and that is what prompted their inclusion in the Novel. Further, the Novel records the statement having been given "on more than one occasion", which again can be said to cut both ways: on the one hand, it is indeed the claimants' present case that the assurance was given on more than one occasion, but on the other hand was certainly not, on the evidence I have heard, given to John "on more than one occasion".
Both the claimants were very positive in their respective cross examinations that they clearly recollected the assurances being given on, or perhaps very close to, the two days to which I have referred. Their present case was fairly said by Miss Start to be inconsistent, in terms of significant details, with a number of other statements purporting to record the assurances. It is different from what is recorded in the Novel, as just discussed above, and there appears to have been no obvious reason to depart in the Novel from what really happened in connection with the alleged assurance. Further, as Miss Start said, the evidence was also inconsistent with what was recorded at a conference with Mr Roth of counsel on 10th April 1989, when he was apparently told that "on telephone Touche confirmed there are "no deal breakers"": there has been no suggestion in the evidence before me that any of the assurances was made on the telephone. In his statement made in connection with the action on 19th November 1992, Peter stated that he recalls "on several occasions being reassured by Stephen Morris... that there were "no deal breakers"", but there is no reference to John having been involved: what Peter said in that statement is not really inconsistent with his evidence to me, albeit that a criticism that can be made is that there was no reference to John having been present on one of the occasions.
In the claimants' Further and Better Particulars in the action, Peter alleged that the assurances were given on 11th, 12th or 19th September, and it is not now alleged that it was on any of those days. Miss Start contends that those days were abandoned because they were subsequently shown to be demonstrably inaccurate as Mr Morris was then on holiday. That submission appears to me to be well founded. She also points out that there is an inconsistency between the allegation in the Statement of Claim in the action (which alleges the representations were made "about mid-September 1986") and the allegation in the Statement of Claim in these proceedings (where the relevant time is "about August/September 1986"). Further, in the Further and Better Particulars in these proceedings, served on 30th July 1997, the two occasions are more closely pleaded, being "on or about 1st September 1986", with only Peter present, and the "second such occasion", while said to be in the presence of both claimants, is also said to be on a date "no longer specifically recalled". The first date has now been moved forward to the 4th September, and the second date has now been recalled.
In summary, the position is this. On the one hand, the claimants, and in particular Peter, have been tolerably consistent in their evidence that they were given the assurances by Touche Ross: it is not something which was raised for the first time during the action, let alone during these proceedings. If one takes into account the Novel, it was actually raised in late 1987 or early 1988. On the other hand, from the claimants' point of view "the devil is in the detail" because the date and place of the alleged assurances vary.
My assessment of each of the claimants was that, although by no means everything they said could be relied on, they could not be characterised as dishonest. I also believe that the events of 1986 and 1987 had had a pretty deep and fairly traumatic effect on them, and that they had spent a lot of time thinking about and discussing those events. I have little hesitation of acquitting them of misleading the court intentionally in connection with the alleged assurances. However, I do have real doubts as to whether the court trying the action would have accepted that their recollection was accurate on this issue. I conclude that, while there is a real prospect that their evidence would have been accepted, there is a better chance that a court would have concluded that, over the years subsequent to 1987, they had in one way or another persuaded themselves that the assurances were given when they were not in fact given.
Although I have some hesitation about this, I have come to the conclusion that I should not decide whether or not the assurances were given. It is true that I heard from both the claimants and Mr Morris, and it is unlikely that there would have been other relevant witnesses. However, I have in mind the following factors:
1. I heard the evidence some three years later, and therefore some three years further, from the relevant time, than would have been the case in the action;
2. It is quite possible that there could have been relevant Touche Ross documents bearing on this issue at the trial of the action;
3. It is conceivable that the evidence of other Touche Ross witnesses who would have been called in the action would have cast light on the issue;
4. The oral evidence I heard has left me in a genuine state of uncertainty on the issue.
In case I am held to be wrong in my view that the court is entitled to conclude and/or that it is open to me in this case to conclude that the claimants had a real prospect, but no certainty, of establishing that either or both of the assurances were given, it is, I think, appropriate for me to express a view as to whether or not I consider that, on the totality of the evidence that I have heard, assurances were given. If required to determine the point, I would have come to the conclusion (effectively foreshadowed by the preceding two paragraphs) that I was not satisfied that either of the assurances was given. Having indicated that would have been my conclusion, it is only fair to the claimants to add that the making of that contingent finding does not carry with it the implication that believed that either of them was lying: as I have already said, it seems to me the claimants each believed the truth of what they respectively said on this issue. I accept that the claimants had meetings with Mr Morris, and that, at those meetings, he said nothing to suggest that the contents of the draft Report or the Report were inaccurate. Given that the claimants (both in light of their evidence and in light of their contemporary actions) regarded the draft Report and the Report as indicating that there was no reason not to go ahead with the acquisition of the Admiral shares, and given that the claimants' understanding of the assurances would have been that there was no reason known to Mr Morris why they should not proceed with the purchase, it is not, I think, very difficult to see how the claimants could have persuaded themselves, particularly in the light of what happened afterwards, that the assurances were given.
Conclusions on breach of duty
The claimants' case in the action would have been that Touche Ross was negligent in two respects, namely in the preparation of the Report and in giving the assurances. It is common ground between the parties that I should decide whether the claimants had an overwhelming prospect, no real prospect, or a reasonable prospect of success in establishing liability against Touche Ross so far as the Report is concerned, and, if I consider that the prospect would have been reasonable, that I should go on to express that prospect as a percentage: that seems to me to be correct in principle and in accordance with the cases to which I have referred.
As I have indicated, this appears to me to be an unusual case in the sense that the evidence and arguments relating to the claimants' prospects of success in establishing the breach of duty in the action have been far more extensive than in the great majority of the "loss of the chance" cases of this type. Because of that, it appears to me to be easier for me to decide that the claimants stood no real chance of success or had a very strong prospect, than it would be in the majority of cases. Nonetheless, as I have also indicated, in light of the oral factual evidence (from the claimants themselves, Mr McIsaac and Mr Morris), the documentary evidence (the draft Report, the Report itself, the correspondence and much of Touche Ross' workings) and the expert evidence, I am quite satisfied that this is not a case where I can express a confident view either way as to the claimants' prospects of establishing breach of duty in the action.
First, it appears to be clear that I have not heard or seen evidence from witnesses (such as Mr Brookes and Mr Jones who appear to have carried out the bulk of the Touche Ross work) and documents (including much of the workings of Touche Ross and some of Admiral's own documents) which would very probably have been available to the court hearing the action. Secondly, having heard and considered the evidence of the expert witnesses and considered their views against the factual evidence which was available to me, it seems to me that the claimants' case against Touche Ross based upon the Report was one which stood a real chance of success, but was simply not the sort of case which any sensible lawyer or accountant advising his client would have been confident about either way.
Bearing in mind my assessment of the oral and documentary evidence on this issue as a whole, and taking into account the guidance given by the Court of Appeal in the cases to which I have referred, including the principles laid down by Simon Brown LJ in Mount, I have reached the conclusion that the claimants had a better than evens prospect of establishing negligence against Touche Ross so far as the preparation of the Report is concerned.
I turn to the second aspect of the claimants' claim, based on the assurances. As I have mentioned, albeit with a degree of diffidence, I have concluded that that question is to be judged on the "loss of a chance" basis. For reasons I have already effectively given, I would assess the claimants' prospects of establishing that the assurances had been given at rather less than evens, partly because of the evidence of Mr Morris and partly because of the inconsistencies in the claimants' evidence on this point over the years. I do not consider that the claimants' prospects were by any means hopeless, because of the consistency of their contention that the assurances were given, and bearing in mind my assessment that, although not exemplary witnesses, the claimants were basically honest, and would have come across as such at the hearing of the action.
However, I do not consider that the claimants would have been greatly assisted in the action had they established that the assurances were given, and to that extent the whole issue relating to the assurances appears to me to be largely academic. If the assurances were given, the way in which they were expressed is not entirely easy to translate into precise language. In her closing submissions, Miss Start helpfully summarised the evidence of the various witnesses who were asked what would be meant and understood by the assurances. Mr Taylor said that a "deal breaker" was something which led to a decision that a particular investment was unsuitable; Mr Israelsohn said, to much the same effect, that the "deal breaker" was something which would cause a potential investor "to walk away". Peter said that the absence of a deal breaker meant that there were "[no] reasons why we shouldn't proceed with the deal" and that the Report was "a green light". John said that it meant that Touche Ross had found nothing "which means that we shouldn't go ahead" and that Mr Morris was "absolutely comfortable with the Report". He also said that he took the assurance made to him and John "to mean that there was nothing wrong with the final Report".
In many ways, these interpretations mean much the same thing. The assurances, if given, were made in the context of (in the case of the first assurance) the draft Report and (in the case of the second assurance) the final Report, and in the context of the instructions initially given to Touche Ross. Further, the assurances must be construed in a commercially sensible way. Accordingly, it seems to me that it cannot be suggested, and I did not understand Mr Salter to suggest, that the assurances could have been interpreted as meaning that Mr Morris was warranting or representing in absolute terms that there was no reason why the claimants (and CIN) should not go ahead with the acquisition of the Admiral shares.
In my judgment, the way in which the assurances (if made) would have been meant by Mr Morris, and would have been understood by the claimants, would have been as follows. First, the assurances would have confirmed that Mr Morris was happy with the accuracy of the contents of the Report. Secondly, they would have indicated that there was nothing in the Report which, so far as Mr Morris was concerned, should have put the claimants off going ahead with their proposed purchase, if, in their commercial judgment, that was otherwise the appropriate course. In my judgment, the assurances, so understood, would not have added greatly to what was understood by the claimants, and would reasonably have been understood by the claimants, from reading the Report. It was not suggested either in evidence or argument that Mr Morris was suggesting that he was positively advising the claimants to proceed with the acquisition of the Admiral shares. Not only is that view consistent with my interpretation of the Report as discussed above, and with the fact that the claimants went ahead with the acquisition having seen the Report: it is consistent with the attitude of CIN who also went ahead with the acquisition having seen the Report, but without the benefit (or, so far as I am aware, the knowledge) of the assurances. In those circumstances, if the Report was negligent, the assurances would not have taken the claimants' case much further; on the other hand, if the claimants had failed to establish negligence against Touche Ross in connection with the Report, then, even if they had been established as having been made, the assurances would not have taken matters much further.
However, I believe that it would be right (subject to the question of reliance) to increase my assessment of the claimants' prospects of success on the issue of Touche Ross's negligence because of their further prospect of establishing that the assurances were given. I do consider that it is a significant possibility that a court, which felt that the claim in negligence against Touche Ross based on the Report alone was very finely balanced, might determine the issue in favour of the claimants, if it found that the assurances were given. To put the point in a slightly simplistic way, the Report could be said to have been negative in the sense that it did not discourage the claimants, but the assurances (if made) could be said to have been positive in the sense that they did (or could reasonably have been expected to) encourage them to proceed. The Report can fairly be said to have left it to the recipients to decide, without specific advice in that connection, as to whether to proceed with the acquisition. The assurances, if given, took matters a little further in that Mr Morris was saying that he could see nothing in the Report, and had seen or heard nothing, to indicate why the claimants should not proceed with the acquisition.