England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		06/05/2004

The Honourable Mr Justice Langley :

THE CLAIM AND ITS BACKGROUND
1. This claim is brought by the Trustees of Wasps Football Club, the well-known rugby union club ("Wasps"). The Defendant company ("LSH") is a company of surveyors and valuers. The Part 20 Defendant ("NGJ") is a firm of solicitors. NGJ acted for Wasps at the material times.
2. The claim by Wasps against LSH is for damages for breach of contract and negligence arising out of a valuation of Wasps' ground at Sudbury, Wembley. The valuation in question was dated 6 March 1996. I shall refer to it as the March 1996 Ground Valuation. It is also referred to in some documents as the third valuation. It valued the ground at £832,500
3. In September 1995 the Rugby Football Union ("the RFU") decided that the game in England could go professional. Wasps wanted to do so, if it could. To do so required a substantial injection of funds, particularly to secure playing and coaching contracts but also to provide a ground suitable for the professional game. The first professional season was to be the 1996/7 season. Wasps contemplated a flotation on the AIM market. In the event funds came through an agreement with Mr Christopher Wright the Chairman of Chrysalis Group and the AIM flotation of a company called Loftus Road Plc in the summer and autumn of 1996. Mr Wright's commercial plan was for the Wasps first (professional) team to play at Loftus Road and share the ground and facilities there with the soccer club, Queen's Park Rangers (QPR) in which Mr Wright also acquired an interest. The mechanism to achieve this was that all Wasps assets and liabilities including the ground were transferred by a Business Transfer Agreement dated 10 July 1996 to Wasps Rugby Football Club Limited ("WRFCL") in exchange for 100% of the shares in WRFCL. The ground was transferred to WRFCL at the valuation of £832,500. This transfer was followed, on 5 August 1996, by a share exchange agreement by which Wasps acquired 4,899,999 shares at 50p per share (and one preference share referred to as "the golden share") in Loftus Road Plc in exchange for all the shares in WRFCL. On 24 October 1996 Loftus Road Plc was successfully floated on the AIM market at a subscription price of 72p per share (67p to members of Wasps).
4. Unknown to Wasps, on 12^th July 1996, Loftus Road Plc received a valuation of the Sudbury ground by DTZ Debenham Tie Lung (Mr Wolfenden). This valuation had been sought for inclusion in the prospectus for the flotation of Loftus Road. It valued the ground at £5.7m.
5. In early 1997 LSH advised Loftus Road Plc in connection with the possible sale of the ground with residential planning permission. An application was submitted on 6 July 1998 for residential development of 7.5 acres of the ground. It was rejected by Brent Council. The company appealed. A planning inquiry was held in May 1999. The Inspector reported on 27 July 1999. He allowed the appeal and granted outline planning permission subject to various conditions and a Section 106 planning agreement.
6. Loftus Road Plc sold the ground with the outline planning permission pursuant to a contract dated 23 December 1999 with a developer, Alfred McAlpine Homes Holdings Limited. The gross price was £11.9m and the net proceeds after allowance for costs, including professional fees and section 106 costs, were £8.9m.
7. It is Wasps' case that LSH were negligent in making the March 1996 Ground Valuation, and alleged associated representations, because LSH failed to make proper planning enquiries, failed to appreciate that there were prospects of obtaining residential planning permission for the ground and so substantially undervalued it. The value of the ground in March 1996 is alleged, on the basis of Wasps' valuation expert's report (Mr Lomax) to have been £3.420m. Shortly before the trial began LSH admitted that they were negligent in preparing the March 1996 Ground Valuation because the valuation should have been an open market valuation (OMV) and not a depreciated replacement cost (DRC) valuation, and because they failed to make proper planning enquiries of Brent Council prior to preparing the valuation and undervalued the ground. It is admitted that there were prospects of obtaining residential planning permission but contended they were nonetheless poor. LSH's expert (Mr Pryor) values the ground in March 1996 at £1.534m or £1.164m according to whether or not a restrictive covenant supposedly limiting the use of the ground to recreational purposes was to be ignored or taken into account in the valuation.
8. It is Wasps' primary case that had they been advised properly about the value of the ground and the prospects of obtaining planning permission they would not have disposed of the ground but kept it and, in effect, reaped the reward which came the way of Loftus Road Plc in 1999. That is all very much in dispute. So is the scope of any duty owed by LSH to Wasps.
9. LSH (but not Wasps) has brought a claim against NGJ. NGJ acted for Wasps in the disposal of the ground in 1996. LSH alleges negligence against NGJ in various respects and claims a contribution in respect of any liability LSH may have to Wasps.
THE ISSUES
10. In broad terms the main issues which arise in the action are:

i) Whether any loss alleged by Wasps falls within the scope of the duty which LSH owed to Wasps. LSH contends that the sole purpose of the March 1996 Ground Valuation was to provide figures for any Capital Gains Tax (CGT) liability to be calculated on the transfer of the ground for the proposed flotation by Wasps and as Wasps make no claim in respect of CGT and the Loftus Road transaction was not then in contemplation, LSH has no liability.

ii) At what amount would a non-negligent valuation have valued the ground.

iii) Whether any misrepresentation as to value was made to Wasps by Mr Mark Rigby in respect of which LSH is liable in damages. Mr Rigby was both a member of a number of Wasps' Committees, including the Executive Committee, and a director of LSH. He is now (with effect from January 2004) the Chief Executive Officer of LSH.

iv) What would Wasps have done had they received a non-negligent valuation; in particular would they have excluded the ground from the transaction with Mr Wright in 1996 and sold it later with the benefit of outline residential planning permission.

v) How are Wasps' damages to be assessed. In particular have Wasps suffered any loss at all granted the consideration received from the transaction with Mr Wright; is the question to be judged by the balance of probabilities or the loss of a chance; and how should the consideration in fact received be valued and credited.

vi) Whether Wasps were contributorily negligent or failed to mitigate their loss.

11. In broad terms, the main issues in the Part 20 proceedings are whether NGJ should have advised Wasps:

i) To obtain an open market valuation of the ground and to consider excluding the ground from the transaction with Mr Wright or retaining an interest in any sum which might be obtained from its subsequent disposal;

ii) That the March 1996 ground valuation was expressed to have been prepared on a mistaken basis as to the terms of a restrictive covenant to which the ground was subject;

iii) That the golden share entitled Wasps to exercise a right of veto in respect of the sale of the ground by Loftus Road Plc.

PARTIES, PLAYERS AND WITNESSES
12. Wasps is and was an unincorporated association with a number of Committees. The ultimate governing body at the time was the Club Council. Beneath that was the Executive Committee (later called the Policy, Finance and Advisory Committee). Other Committees which feature in the story were the Ground Development Committee and the Way Forward Committee formed to address the professional era.
13. It is notable that in the course of the events giving rise to these proceedings whilst various members of Wasps have found themselves on what might be termed different sides all of them from whom the court has heard have readily acknowledged the enormous hard work and devotion to the interests of the Club the others demonstrated in what were demanding circumstances. They were plainly right to do so. It is, I think, of some relevance that despite the personal and professional skills of those concerned in the management of the Club it was quite apparent that Wasps inspired feelings of loyalty and commitment which could prevail over commercial precision.
14. I am sure all the witnesses of fact were doing their honest best to recall the events about which they gave evidence. But the events were well in the past and the circumstances of the time were fraught. There is no doubt that on some issues of importance recollection differs. In particular they differ about the circumstances and terms of the instructions which gave rise to the March 1996 ground valuation. The court is, I think, in these circumstances, generally reliant upon the documents both for what they say (and indeed do not say) and also upon the consistency and timing of the statements made by the witnesses and of course the probabilities. But the 'nature' of Wasps and the breadth of the submissions made on the evidence and the, to my mind, difficulties of some of the issues, make it necessary to set out the history of events in some detail and so I will first identify those who were most concerned.

WASPS

15. The members of Wasps who gave evidence at the instance of Wasps and who played prominent parts in the events were Ivor Montlake, Malcolm Evans, and Tony Simmonds.
16. Mr Montlake is an experienced solicitor, has been a member of Wasps since 1948, and was Honorary Secretary, a Club Trustee and a member of the Executive, Ground Development and Way Forward Committees at the time of the material events. Mr Montlake made two witness statements which were served on behalf of Wasps.
17. Mr Evans was a first team player for Wasps from 1976 to 1983. He was the Accountant and Honorary Treasurer to the Club from 1992 until July 1996 and Chairman of the Way Forward Committee from December 1995 until July 1996. He acted for Wasps with Mr Rigby in the early negotiations with Mr Wright. Mr Evans made four witness statements. The first two were served on behalf of LSH, the second being served in the Part 20 proceedings. The third and fourth statements were served on behalf of Wasps and it was Wasps who called him to give evidence. Mr Evans left Wasps for business reasons in July 1996.
18. Mr Simmonds is a Chartered Accountant and senior member of Simmons & Gainsford LLP (formerly Simmons Cohen Fine) who were auditors of Wasps from 1982 to 1996. Mr Simmonds attended meetings of the Way Forward Committee from January 1996. Mr Simmonds made three witness statements which were served on behalf of Wasps.
19. Other Wasps' members who played a part in events were: Richard Cargill, a solicitor, who acted with Mr Montlake in connection with the proposed transfer of assets and flotation on the AIM; Phillip Challinor, an architect, who was a member of the Ground Development Committee; and John Hallewell a member of Wasps' Council. The Chairman of Wasps was Sir Pat Lowry. Sir Peter Yarranton, a Trustee and one of the Claimants, died in 2003.
20. NGJ. Warren Phelops, an assistant solicitor in the company department at the time, acted for Wasps in connection with their fund raising proposals in 1996. Mr Phelops (now a partner) prepared a witness statement at the request of Wasps and two witness statements on behalf of NGJ in the Part 20 proceedings. He was called to give evidence on behalf of both Wasps and NGJ. Michael Jacobs was a partner in NGJ's tax department. Jenny Cottrell and John Elgar were solicitors in, respectively, the tax and corporate departments. Timothy Field was a solicitor working with Mr Phelops. Mr Elgar, a partner in the company department at the time, made one witness statement and gave evidence in the Part 20 proceedings. So too did Richard Smith, the head of the property department in 1996. Mark Phillips was a solicitor in the property department.
21. Others. Steven Strauss was a tax partner at Simmons Cohen Fine who attended some Wasps' meetings with Mr Simmonds. Richard Snowden, counsel, advised Wasps in relation to the Club Rules. David Goy, counsel, advised Wasps on tax matters in February 1996.
22. Christopher Wright, the chairman of Chrysalis Group and Charles Levison, a solicitor and director of companies in the Group, both prepared two witness statements and gave evidence at the request of Wasps. Harbottle & Lewis acted for Mr Wright in the transaction. Mr Wolfenden of DTZ also prepared a witness statement and gave evidence on behalf of Wasps. Peel Hunt & Company Limited were the brokers who acted on behalf of Wasps in relation to the proposed AIM flotation.

LSH

23. Mark Rigby prepared three witness statements. The first was served on behalf of LSH in the claim by Wasps and the second on behalf of LSH in the Part 20 proceedings. A third statement, dated 16 January 2004, was prepared at a time when Mr Rigby was no longer with LSH (having left on 12 September 2003). Prior to that he had been a director of LSH. His third statement was served by Wasps. Mr Rigby returned to LSH as Chief Executive Officer later in January and some 4 weeks before the trial began. Mr Rigby is not a valuer but a retail surveyor. He is a former captain of the Wasps first XV. He was Chairman of the Ground Development Committee and a member of the Executive and Way Forward Committees. He was appointed a non-executive director of Loftus Road Plc in July 1996 and resigned that position and as an officer of Wasps in 1999. Mr Rigby, in particular, found himself in a difficult position in these proceedings with divided loyalties. He gave evidence at the request of LSH. In my judgment he did so with very considerable dignity despite the personal and professional situation in which he found himself.
24. Anthony Atkinson was the director of LSH who prepared the March 1996 Ground Valuation and other valuations to which it will be necessary to refer. David Bianco is the Head of Development Consultancy at the London West End Office of LSH. Michael Hopkins is the Principal Planning Consultant at the Manchester Office of WS Atkins Plc, the parent company of LSH. They gave evidence at the request of LSH. Mr Bianco and Mr Hopkins were concerned with the planning application by Loftus Road Plc. Valuations of two residential freehold properties owned by Wasps adjacent to the ground were prepared by Andrew Hale also in March 1996.

THE EXPERTS

25. The Valuation expert for Wasps was Andrew Lomax, the senior valuation partner of Drivers Jonas. He prepared two reports dated 6 August 2003 and 1 March 2004. The Valuation expert for LSH was Roger Pryor, a partner of Strutt & Parker. He prepared two reports dated 31 July and 19 December 2003. The Accountancy expert for Wasps was Martin Hall a director of Lee & Allen Consulting Ltd. He prepared three reports dated 7 August and 2 December 2003 and 23 February 2004. The Accountancy expert for LSH was Frank Ilett a partner of Deloitte & Touche. He prepared two reports dated 30 July 2003 and 21 January 2004. The Valuation Experts also prepared a Joint Memorandum dated 29 January 2004 and the Accountancy Experts prepared a Joint Statement dated 27 November 2003 and a Supplemental Joint Statement dated 5 February 2004.
CHRONOLOGY AND KEY EVENTS

Purchase of Sudbury

26. Wasps was established in 1867. The Club moved to the Sudbury ground in the 1920s. The Club acquired the freehold of an 8 acre site in 1928 by a conveyance dated 6 December 1928.

The Restrictive Covenant.

27. The 1928 conveyance contained a covenant that if the site should be developed at any future time for building purposes, certain restrictions would apply, in particular that the plans for the proposed buildings should have the prior approval of the vendor's surveyors (not to be unreasonably withheld), the buildings should not be used except as private dwellings houses, shops or business premises, a fee of £1-1-0 per home or shop should be paid, and all houses erected should be of a minimum value of £750 each.

The 1965 extra land.

28. In 1965 Wasps added two small strips of land (0.53 and 0.38 acres) to the north and east of the ground by acquiring them under long leases from Wembley Council. The leases included covenants that buildings were not to be erected without the landlord's consent and that the land was to be used only for purposes connected with the activities of the Club.

The 1995 land.

29. In October 1995 the ground was enlarged by the leasing on a 125 year lease from Brent Council of 4.4 acres immediately to the east of the freehold land. This lease included a covenant to use the area primarily for the promotion and playing of rugby and ancillary activities. Wasps paid £50,000 for the lease. Negotiations had begun some two years earlier.

The Sudbury ground in 1996.

30. By 1996 the total area of the ground (freehold and leasehold) was about 13.96 acres. Over the years (and despite the restrictive covenant) the Club had built and extended a substantial clubhouse and a grandstand along with other stands and terraces around the main rugby pitch. The clubhouse was a two-storey building with bars, changing rooms, hospitality suites, a gym and a staff flat. The Club had also acquired two freehold residential properties bordering the ground at 31 Repton Avenue and 77 Eton Avenue. Wasps ran a total of 14 teams and the first team was one of the premier sides in the country. The ground was surrounded on three sides by Vale Farm comprising various sports grounds and public open space itself surrounded by residential areas. On the fourth (south) side the ground adjoined a residential area.
THE MARCH 1994 LSH VALUATION
31. In late 1993 LSH was asked by Wasps to carry out a valuation of the ground. The valuation was required for "accounting purposes" but was subsequently also required for the purposes of Wasps getting a loan from the RFU secured on the ground. Instructions to LSH for the accounting valuation came from Mr Evans to Mr Rigby. Mr Rigby, writing on behalf of LSH, had sought the instruction for LSH by letter to Mr Evans dated 14 October 1993 quoting a fee of £750 plus VAT. That letter is annotated with two notes which show that Mr Rigby was to let Mr Atkinson (who was to do the valuation) have "details of lease" and that Mr Rigby had requested the lease. Indeed Mr Rigby on behalf of LSH wrote to Mr Montlake on 13 December 1993 requesting copies of the two leases of the two small strips of extra land acquired in 1965 "as well as the title documents". The title documents would, if provided and read, have revealed the terms of the restrictive covenant.
32. By Mid-February 1994 Mr Rigby was aware that the valuation was also required in connection with the proposed loan from the RFU. Mr Atkinson spoke to the planning department of Brent Council at about the same time and his notes record that he was told the ground was "Part of Vale Farm. All public and private open space, no development."
33. On 3 March 1994 Mr Atkinson sent Wasps (Mr Montlake) the March 1994 LSH Valuation (also referred to in the documents as "the first valuation"). The accompanying letter stated Mr Atkinson's understanding that the report was required "for accounting purposes" adding "in view of the specialist nature of the property, the report has been prepared on the depreciated replacement cost basis of valuation."
34. The Valuation itself, however, stated on its front page that it was prepared for the Trustees of Wasps "and the Rugby Football Union." Mr Atkinson said, and I accept, that the reference to the RFU was added after the valuation had been prepared, probably after he had spoken to Mr Rigby.
35. The March 1994 LSH Valuation related to the freehold land and the two strips totalling 9.55acres. The site contained two rugby pitches, a practice ground, car parking, the clubhouse and a number of stands and terraces. Under the heading "Tenure" the valuation stated: "The main part of the site, approximately 4.65 (changed in manuscript to 8.64) acres is owned freehold, we understand. We have not seen a copy of the Deeds but we understand that there is a restrictive covenant restricting the use to recreational facilities". Under the same heading reference was made to the leases of the two small strips of land and the fact that the use of this land was restricted "for the purposes connected with the activities of" Wasps."
36. Under the heading "Town Planning" it was stated that "we are advised that the Brent Council have no proposals affecting the property and that it is an area reserved for public and private open space". There is no doubt, as Mr Rigby said, that for so long as this remained the case planning consent for residential development was not a realistic possibility.
37. The valuation on a DRC basis (explained in an attachment) was £782,500 and it was stated that "due to the specialist nature of the property it is likely that the open market value will be less". Of the sum of £782,500 Mr Atkinson's working papers show that £540,000 was attributed to the clubhouse.
38. Finally the report concluded with a statement that it was "confidential to the addressee for the specific purpose to which it refers". In fact the report itself, unlike the accompanying letter, made no reference to any purpose.

The DRC Basis of Valuation

39. The description of the DRC basis of valuation attached to the March 1994 LSH valuation was derived from the Statements of Asset Valuation Practice and Guidance Notes published by the Royal Institution of Chartered Surveyors (commonly referred to as "The Red Book"). The description included the following:

"1…. It is a method of using current net replacement cost to arrive at the value of land and its existing use and the gross replacement costs of the buildings and other site works from which the appropriate deductions may then be made to allow for age, condition, economic or functional obsolescence and environmental and other factors which might result in the existing property being worth less than a new replacement….

2. In making our valuation we have reflected the following matters:-

a)….

b)….

c) We have assumed that the property is free from encumbrances, mortgages, restrictions or other matters of an onerous nature which would affect the value, unless stated in this report.

3….

4….

5. We have not examined the Title documents and we recommend that the information with which we have been supplied with regard to Tenure should be verified by solicitors. We have assumed that the property is not subject to any onerous restrictions, unusual outgoings, easements or rights of way and that it is not affected by any Local Authority proposal.

6. In accordance with our normal practice, we confirm that this report is confidential to the party to whom it is addressed for the specific purpose to which it refers …."

The experts were agreed that the DRC basis of valuation was appropriate for financial statements.

The reference to the Restrictive Covenant

40. The reference in the Tenure section of the March 1994 LSH valuation to the terms of the restrictive covenant on the freehold land was wrong. There was no such restriction. Although it was suggested to Mr Atkinson that he might have confused the freehold restriction with the terms of the two leases of the two small strips of land or of the then proposed lease of the 4.4 acres of adjoining land he was sure that he had not. The terms of his description of the Deeds and the leases support him. On the other hand the source of the information he did record about the restrictive covenant remains obscure. The likelihood is that it was Mr Rigby as Mr Atkinson recollected but, if so, Mr Rigby himself must have misunderstood the position, particularly so if he got the information from Mr Montlake as he thought. It is apparent from later exchanges that Mr Rigby was under a misapprehension about the covenant: see paragraph 124. But that could have been derived from the report itself. Mr Rigby said, and I accept, that he had not seen or read the covenant before these proceedings were commenced. Mr Montlake, an experienced solicitor, said, and I accept, that he was aware of the terms of the covenant and that it was effectively a dead letter. The Club had, indeed, expanded the clubhouse and stands without protest. Mr Montlake does not, however, suggest that he corrected the reference to the covenant in the valuation. He said he saw no reason to do so because it appeared to him that it had no material effect on the valuation itself because the planning position made it irrelevant. Mr Atkinson also said the covenant made no difference to the valuation but because it was on the DRC basis which assumed continued use of the ground for recreational purposes. Mr Rigby said if he had thought the covenant was material to the valuation (which he did not) he would have checked it. In his mind it was planning which was the problem for development of the ground.

The RFU Valuation.

41. On receipt of the March 1994 LSH Valuation, Mr Montlake sent a copy to the RFU. The RFU was concerned about the security for any loan it might make and so by the reference to the open market value being less than the DRC value. In a letter to Mr Montlake sent on 10 March the RFU said "what we want to know is the value the property would fetch on the open market if the security had to be enforced". Mr Montlake passed the letter to Mr Atkinson on 11 March and discussed it with him. Mr Atkinson advised that he would value the ground and buildings "on a forced sale" at £400,000 and Mr Montlake wrote to the RFU accordingly on 11 March.
42. On 16 March Mr Atkinson wrote to Mr Montlake on the matter. He explained that "if a valuation is required on an open market basis the value is going to be significantly less (than on a DRC basis) due to the fact that the land is restricted to recreational use (therefore there is no redevelopment potential) and the buildings are of a specialised nature. I therefore consider the open market value will be in the region of £400,000 …." I shall refer to this as "the RFU valuation". In the documents it is sometimes referred to as the second LSH valuation.
43. Mr Atkinson was cross-examined about whether the reference to "no redevelopment potential" in the RFU valuation was a reference to the planning limitation or the restrictive covenant. At first he said it was the latter but acknowledged it might have been both. In paragraph 22 of his first witness statement Mr Atkinson said that his view that the open market value would be less than the DRC value was primarily because of the restrictive covenant which "may have prevented any redevelopment" and because he considered the prospect of securing planning consent for residential development of the ground was "poor". Neither, however, would then have justified the absolute statement that there was "no redevelopment potential". Had the restrictive covenant been expressly raised with Mr Montlake at this time he would, I think, as he said, have corrected Mr Atkinson's view of it. Mr Rigby acknowledged that he would have read Mr Atkinson's 16 March letter as referring only to the planning limitation and I think it is probable that it did. If the covenant was now to have a significant impact on the valuation I think Mr Atkinson would have been expected to say so in terms or, as he believed he might have done, at least to have discussed it with Mr Montlake. Moreover, as Mr Montlake said, in commercial terms and in his extensive experience no property professional would ever regard any restrictive covenant as a total bar: "there is insurance; negotiation; compensation and the Lands Tribunal".

Professional Rugby Union

44. The decision in September 1995 that Rugby Union should become a professional sport caused, as was readily acknowledged, something of a panic at Wasps. At the start of the 1995/6 season some well-known first-team players left the Club to join another Club being established and funded in Newcastle. Wasps needed urgently to raise money to contract players and to improve and develop the ground to a standard appropriate for a professional game and the anticipated larger crowds. It was in October that the further 4.4 acres of land were leased from Brent Council.

The Ground Development Planning Application.

45. The Ground Development Committee, under the chairmanship of Mr Rigby, prepared plans for the development of the ground by the addition of a substantial stadium, relocating the main pitch and other improvements especially to the clubhouse and by the provision of executive boxes. At the time the average attendances at first team matches were about 1800. The development was intended to provide for a capacity of 7500 with 4000 seated and 3500 standing. An application for planning permission for this development was made in October 1995.

Wasps Financial Situation.

46. At an Executive Committee Meeting on 19 July 1995 Wasps financial situation was described as "still precarious". There is no doubt that the Club was living from hand to mouth at the time albeit that the sums involved were not large. At a meeting on 15 November Mr Evans was reporting that extra costs "will set the Club back to breakeven" and expressing the need to offer contracts to players by the end of December with a playing budget for the next season of £500,000 to £600,000 which was not financed. It was this which led to the formation of the Way Forward Committee with the task of recommending to the Executive "the preferred option for raising the funds for the playing side". That was seen to be the priority. The Way Forward Committee met first on 7 December 1995. The discussion included possible "converting to AIM market". Ground moves away from Sudbury were described as "mid/longer term options". It was agreed that the Club must retain a team capable of playing at the highest level of rugby and that the ground development must go ahead.
47. The Executive Committee met on 13 December and concluded that the Club would have to be re-financed. The Minutes record that the Way Forward Committee recommended the formation of a limited company "having revalued the Club at £4-5m" adding "this figure had been arrived at by valuing the net assets of £800k increased with development to £3.3m plus goodwill valued at £1-1.5m". The expressed target was a prospectus prepared by 1 January 1996 followed by a flotation but "all other options would still remain open". It was also recorded that "the possibility of the Club moving in the future could not be discounted because the assumption that the ground could not be developed was probably untrue in today's world". Mr Evans and Mr Montlake were present at this meeting of the Executive Committee. Mr Rigby was not. He had his work cut out with the planning application which had aroused vocal local opposition. The figure of £800k was derived from the March 1994 LSH Valuation.

The Proposed AIM Flotation

48. NGJ were first involved in January 1996. Incorporation and flotation was being proposed. Mr Montlake told Mr Phelops that he thought the Club would have an asset value of £3.75 million made up of the current value (£0.75m) of the ground plus £3m once it had been developed, and "a large goodwill value of approximately £1-2m reflecting the value of a leading world rugby club at a time when rugby is moving into a new age of professionalism with a bright, financial future".
49. As is apparent from a document prepared by NGJ dated 17 January 1996 entitled "Report on Fund Raising Proposal" (described as NGJ's "pitch" for advising Wasps on the proposal) at that time the proposal was to transfer all the Club's assets to "Newco" and to offer half Newco's shares to existing Club members and the other half to external investors. The Report raised the obvious questions about the value of Wasps' assets, whether they had been valued independently, the need for Newco to have asset backing, and the possibility of the Club retaining the freehold land and leasing it to Newco. All the witnesses concerned, including Mr Rigby, said it was a "given" and well known that for any flotation or fund-raising a valuation of Wasps' assets would be required and that the ground was the only substantial tangible asset the Club had. The pitch document was discussed at an Executive Committee Meeting that night when the value of the Club was again discussed including the value of the ground.

NGJ's Retainer.

50. NGJ were instructed to act for Wasps shortly after the pitch document. NGJ wrote to Wasps on 8 February 1996 to record the Club's instructions "to act as the club's legal advisers on its proposed incorporation and finance raising exercise". The letter referred in particular to "basic work" to include "the transfer of assets to a company for a consideration of shares and the raising of equity from members and third parties including the preparation of a prospectus or information memoranda and a possible listing on AIM". Mr Montlake said Wasps were not only cost conscious but had the benefit of his own and Mr Cargill's experience and advice and on several occasions they had expressly limited the work NGJ was to do.
INSTRUCTIONS FOR THE MARCH 1996 GROUND VALUATION.
51. There was a meeting of the Way Forward Committee on 31 January. Mr Evans had typed some notes he made of "Action" required as a result of the meeting. Mr Rigby, Mr Montlake, Mr Phelops and Mr Simmonds were present at the meeting. Mr Evans' notes include:

"Valuation of Ground

Establish valuations at 1965 and 1982 to establish whether Capital Gains Tax exposure. Action MR (Mr Rigby)."

52. There was a conflict of recollection about whether or not LSH (by Mr Rigby) had been asked prior to this meeting to prepare a current valuation of the ground for the general purpose of raising funds (as Mr Evans said in evidence) or whether the only request made was made at this meeting (as Mr Rigby believed). Whilst I do not doubt that all those concerned fully appreciated a current valuation was required generally for fund raising purposes, I do think the probability is that Mr Rigby is right about the timing and trigger for the actual request for a valuation. I think the reality is that, despite what was minuted at the 13 December meeting (paragraph 47) no one present at that meeting nor Mr Rigby believed there had been any material change in the valuation since 1994 and the target and focus at the time was to develop the ground for professional rugby. There is no doubt that at the 31 January meeting Mr Simmonds expressed concern that transferring the ground to Newco could give rise to a CGT liability and I think that was probably the catalyst for the request for further valuations. Much was sought to be made of the fact that Mr Evans' notes make no reference to a current valuation at all (the 1965 and 1982 dates were both potentially material as base dates for a CGT calculation) but I think that is just as consistent with the focus being the need for earlier valuations for CGT purposes as it is with any suggestion that a current valuation had already been requested. My conclusion is also supported by the fact that Mr Evans only mentioned an earlier instruction in his oral evidence and in none of his witness statements and the fact that Mr Rigby did not pass on any instruction to Mr Atkinson before the end of January. Mr Atkinson's first working notes are dated 8 February 1996. Moreover in the letter of claim dated 15 April 2002 NGJ on behalf of Wasps asserted that it was on 31 January 1996 that Mr Rigby agreed to provide base valuations for CGT purposes but that he was "subsequently … verbally instructed to provide a full current valuation".
53. The context of the possible exposure to CGT was, however, and was known to all the participants at the meeting itself to be, the proposed transfer to Newco which itself was only a step to raising funds by issuing further shares in Newco for which purpose it was also known a current valuation would in any event be required. Wasps could ill afford any CGT liability. There is again a dispute as to the nature of the discussion at the meeting itself which led to LSH by Mr Rigby being asked to prepare valuations.
54. Mr Simmonds in his third witness statement (only served on 15 February 2004) and in his oral evidence said the gist of what he said at the meeting was that a current valuation was needed to help to decide whether a flotation was practicable or not and current and earlier valuations were also needed to determine any CGT liability which might have to be met. Mr Evans' evidence in his fourth witness statement (only served on 16 February 2004) was to the same effect. The evidence of Mr Simmonds does, however, contrast with his first witness statement.
55. Mr Rigby, in his first witness statement and his oral evidence, frankly and understandably acknowledged that he relied on Mr Evans' notes "to remind himself of what was discussed" at the meeting. He said he understood a valuation was required to establish whether the Club's restructuring proposal would give rise to any CGT liability and that he had passed that on to Mr Atkinson. Mr Rigby acknowledged that his understanding at the time was that a valuation in the context of CGT would itself require a comparison between a current value (on some basis) and a value at an earlier date which he thought was 1982. He also appreciated that CGT was an issue in whether or not the ground was transferred to Newco. But he said he did not recall Mr Simmonds discussing the matter in the terms of which he gave evidence. Nor would he accept that at the meeting a current valuation was sought for the express purpose of deciding how to raise funds for the Club. But he did agree that a CGT valuation not only included a current valuation but was to be provided by LSH in circumstances in which he and everyone else at the meeting also knew that Wasps needed a current valuation for general fundraising purposes. Mr Rigby also accepted that the valuation came to be relied upon by Wasps (including himself) in the context of the proposal from Mr Wright. As he put it, the context of the valuation got lost "and a valuation is a valuation", and had he been asked if the valuation could be relied upon as a valuation on which Wasps could base decisions as to what to do in the fundraising exercise he would have agreed that it could.
56. In my judgment there is in reality not as much between these versions of events on 31 January as might appear. What was new, and arose for the first time at the meeting, was the need for historic valuations "for CGT purposes". What was also required, both for general fund raising considerations and for CGT purposes, was a current valuation. Those present (apart from Mr Simmonds who had not been involved before) thought the current valuation was no different from 1994. None of them would have appreciated or focused on the differences between the March 1994 LSH Valuation and the RFU Valuation. In effect, in my judgment, what was said and understood lies somewhere between the two starker versions and amounted to a general understanding that LSH would provide valuations which could be used both for CGT purposes and as confirmation of the current value of the ground. Subsequent events, I think, bear that out.

Capital Gains Tax.

57. It is quite clear from the documents that the structure of any fundraising scheme was itself subject to tax considerations. The point was expressly raised by NGJ in a paper dated 8 February. Advice was given by Mr Goy. Essentially the advice was that whilst various reliefs might be available CGT would be payable on a transfer of the Club's assets to a company and would be assessed by reference to the market value of the assets transferred.

Preparation of the March 1996 Ground Valuation.

58. Mr Rigby was chased for the valuation and work in earnest seems to have begun on it in early March. There were no written instructions. Mr Rigby said he asked Mr Atkinson to do the valuation of the ground and either he or Mr Atkinson asked Mr Hale to value 31 Repton Avenue and 77 Eton Avenue. Mr Rigby said in his third Witness Statement (paragraph 2) and confirmed in the course of his oral evidence that he knew and told Mr Atkinson that Wasps needed the valuations to help them decide whether or not to transfer the ground to Newco for fundraising purposes and that a significant CGT liability would cause difficulties. He said Mr Atkinson "knew that the valuation advice received was important to the decision making process in relation to the ground and was part of the process to enable Wasps to raise funds for the professional era". Mr Atkinson did not recall this. His recollection was that he was informed that the valuation was required purely for CGT purposes and that if he had been informed as Mr Rigby recalled he would have carried out the valuation on an open market valuation basis and not, as he did, on a DRC basis.
59. I find this conflict of recollection difficult to resolve. I am sure both Mr Rigby and Mr Atkinson were giving an honest account of what they believed to be their recollection when they gave their evidence. Mr Atkinson is supported by the terms of the opening sentence of the valuation itself. Mr Rigby is supported by the probability that he would have given some context to the request for a valuation, by the terms of Mr Hale's valuations of the two residential properties and the obvious consideration that if there were a CGT liability it would only arise if there were a transfer. On balance I think Mr Rigby is right about what was said and Mr Atkinson was aware that the valuation would have a material bearing on how the Club took forward its efforts to raise the funds it needed. I do not accept that Mr Atkinson would otherwise have prepared the valuation on an OMV basis. A "CGT" valuation should be on that basis in any event, as Mr Atkinson said he knew, and he had no convincing explanation for departing from it.
THE MARCH 1996 GROUND VALUATION
60. On 6 March Mr Atkinson addressed a two-page letter to "Wasps Football Club" copying the letter to Mr Rigby in (so far as material) these terms:

"WASPS FOOTBALL CLUB GROUND, REPTON AVENUE, SUDBURY, WEMBEY

We refer to your verbal instructions to provide you with an updated valuation in respect of the above for the purposes of capital gains tax.

We have not carried out a further inspection but have reviewed the figures in our report dated 3 March 1994 which was carried out by A M Atkinson, FRICS, a copy of which is attached.

AS AT MARCH 1996

We do not consider that the values will have materially changed from those reported in March 1994 in respect of the property at that time.

However, since the report was prepared, a further area of land extending to approximately 4.4 acres to the eastern side of the grounds and marked yellow on the plan attached to our report has been acquired from the Brent Council on a 125 year lease at a peppercorn, together with a Licence which provides in perpetuity the right to park up to 300 cars on match days on an area of land owned by the Brent Council on the north west corner of the grounds marked with a red cross on the plan.

We are advised that the purchase price of the land was £50,000, although part of the payment was deferred.

We confirm that we consider this to be the market value of the land. In view of the acquisition of this area of land we consider that the valuation figures as at today's date would be increased to a figure of £832,500 (Eight Hundred and Thirty-Two Thousand Five Hundred Pounds).

AS AT 1 APRIL 1982

The property as at April 1982 excluded of course the 4.4 acres referred to above. Furthermore, the clubhouse was smaller as this was subject to an extension in 1988 on the southern end, extending to approximately 1,900ft² (176.5 m² ).

Our valuation of the property as at 1 April 1982 based on the same basis as the value reported on 3 March 1994. i.e. on a depreciated replacement cost basis, would be in the region of £386,000 (Three Hundred and Eighty-Six Thousand Pounds).

To arrive at a comparable figure with the 1996 figure it will be necessary to add to the 1982 figure improvements, in particular the extension to the clubhouse, at cost, together with certain ground improvements. Both the 1982 value and the improvements will then need to be index linked.

Date Item ValueCost Index Total

Linking

01.4.1982 clubhouse & Ground £386,000 1.90 £733,400

10.6.1988 clubhouse Extension £195,718 1.40 £274,005

*ca. 1990 Pitch Improvements £25,000 1.19 £29,750

*ca. 1993 Terrace by clubhouse £20,000 1.07 £21,400

1995 4.4 Acres additional Land £50,000 - £50,000

Total after Improvements and Index Linking £1,108,555

*Approximate figures, which will require further verification.

We therefore consider that there will be a capital loss rather than a capital gain."

61. A copy of the March 1994 LSH Valuation was indeed comb-bound with this letter but there is a doubt about the original attachment to that valuation which described the basis of a DRC Valuation. Mr Montlake's file copy of the March 1996 Ground Valuation has attached to it following the copy of the March 1994 LSH valuation a description of the OMV not the DRC basis of valuation. Mr Atkinson says, and I accept, that if this was so it was an administrative error in LSH's office. He had prepared the valuation on a DRC basis. Nonetheless I see no reason to doubt that the error occurred. Indeed I think the attachment was intended to be the attachment to the March 1994 LSH Valuation. The OMV basis of valuation, as described, (and also derived from the Red Book) was said to be

"intended to mean the best price which might reasonably be expected to be obtained at the date of valuation, assuming:-

(a) A willing seller.

(b) A reasonable period in which to negotiate the sale …

(c) That values will remain static throughout the period.

(d) The property will be freely exposed to the market.

(e) That no account will be taken of any additional bid by a purchaser with a special interest."

62. The description of OMV also stated in the same terms as the DRC description (paragraph 39) the assumption that the property was free from "encumbrances, mortgages, restrictions or other matters of an onerous nature which would affect the value, unless stated in the report"; that the Title documents had not been examined and the information with regard to Tenure should be verified by solicitors; and that the "report" was confidential to the addressee "for the specific purpose to which it refers".
63. I would make the following comments on the March 1996 Ground Valuation:

i) The valuations at March 1996 and April 1982 are contained in the (two-page) letter.

ii) The opening paragraph of the letter is a clear statement of the purposes for which the valuations were provided. But the letter does not contain any express reference to a limitation to any "specific purpose" unlike the March 1994 LSH valuation which referred to a limitation both in the body of the valuation and in the attached description of the DRC basis of valuation: see paragraphs 33, 38, and 39. I do not think the statement in the description of the OMV basis of valuation can properly be read as applicable to the two-page letter itself. It was attached to the March 1994 LSH Valuation and in fact was erroneous in that context and as regards the March 1996 Ground Valuation.

iii) A studied reading of the letter (and the enclosures) would I think have led the reader to wonder whether the valuations were prepared on a DRC or OMV basis. The references to and attachment of the March 1994 LSH valuation point to a DRC basis. But the reference to "the market value of the land" (in the specific context of the 4.4 acres but also as an addition to the total valuation) points to the OMV basis. It is agreed that a valuation for CGT purposes should be on an open market value basis: Section 272(1) of the Taxation of Chargeable Gains Act 1992. Anyone with that knowledge would reasonably be expected to be influenced by it. Mr Montlake said, and I accept, that what was important to Wasps was "the headline figure". In fact, as I also accept, Mr Phelops, Mr Montlake, Mr Evans and Mr Rigby all understood the valuation to be a market value.

iv) There is no mention of the restrictive covenant in the letter itself. Had the letter (or any valuation letter) stated that the value had been discounted by 25% to reflect the existence of a restrictive covenant (as Mr Pryor suggests would have been an appropriate discount) then I accept Mr Montlake's evidence that he would have asked for the matter to be reconsidered in the light of the actual covenant. As Mr Atkinson had in fact approached the valuation on a DRC basis the covenant was no more material to the Valuation than it was to the March 1994 LSH Valuation..

v) There is no mention of planning considerations in the letter itself. Mr Atkinson had not in fact consulted again with Brent Council as, it is agreed, he should have done.

The Valuations of the Residential Properties.

64. Mr Hale's valuations of 31 Repton Avenue and 77 Eton Avenue were also dated 6 March 1996 and addressed to "Wasps Football Club". The opening paragraph of Mr Hale's letters incorporated in the valuations stated:

"We refer to your instructions to provide you with an Open Market Freehold Valuation of the above property at 1 March 1996. You have also requested our opinion of Open Market value as at 31 March 1982 for Capital Gains Tax purposes."

65. The 1996 valuations (on the assumption that planning consent had not been granted for the ground development) were £27,500 (Repton Avenue) and £80,000 (Eton Avenue) with small exposures to CGT arising from the 1982 valuations. The valuations themselves also expressly distinguished between "the open market value" of the properties at 1 March 1996 and the open market value at 1 April 1982 "CGT Purposes".
66. The marked contrast between the opening paragraphs of Mr Atkinson's valuation and Mr Hale's letters and the terms of his valuations is unexplained. Both Mr Atkinson and Mr Hale discussed their valuations in the course of their preparation with Mr Rigby. Mr Rigby instructed Mr Atkinson and either he or Mr Atkinson instructed Mr Hale. Mr Rigby had no recollection of instructing Mr Hale and thought "most probably" Mr Atkinson had done so. Mr Berry submitted that Mr Hale had got it wrong pointing to his completion of an internal LSH form recording the purpose of the valuations as "OMV for CGT purposes". But I do not think that can possibly explain the explicit terms of Mr Hale's letters nor of his valuations themselves. I think it is much more probable that Mr Atkinson, thinking he was in effect only up-dating the March 1994 LSH valuation, which could be assumed to remain valid as a current valuation with the addition of the value of the October lease land, and providing a new valuation only for 1982, used a shorthand description which was inaccurate. There had been no previous valuations of the residential properties. Mr Hale did not provide any evidence in the proceedings. If he was mistaken LSH has offered no reason why he could not have prepared a witness statement to say so. Mr Atkinson was unable to offer any convincing explanation for the difference between the terms of the valuations. The same internal form records that Mr Hale's instructions were "verbal instructions from M.R.". There could be no sensible explanation for Mr Rigby giving different instructions to Mr Hale than Mr Atkinson if indeed it was he who did instruct him.
67. On 7 March Mr Rigby, on LSH notepaper, wrote to Mr Evans enclosing copies of the valuations of the ground and the two houses including Mr Hale's letters. The letter heading was "Wasps FC-CGT Valuations" and referred to verbal instructions "at our most recent meeting at the offices of Simmons Cohen Fine". Mr Rigby had recently been pressed by Mr Simmonds and Mr Strauss for the valuations. The letter also stated that the marginal capital gain in respect of the residential properties would be completely mitigated by the capital loss on the ground and buildings and so, subject to confirmation by the accountants "the transfer of assets as proposed within the proposed flotation" would not have a negative tax implication.

The Rigby Representations.

68. It is alleged in paragraph 28 of the Particulars of Claim served in October 2002 (and repeated in the Amended Particulars of Claim) that:

"At a meeting at the offices of NGJ in March 1996 after the Defendant had supplied the Third Valuation, Mr Rigby (acting on behalf of the Defendant) represented to various members of the Executive Committee and Mr Simmonds that:-

(1) In Mr Rigby's considered view the Ground could only be used for recreational facilities and that there was no hope of getting planning permission for residential development.

(2) Mr Rigby had been involved with Brent Council for a considerable period of time and knew them very well and it would never consider a residential development."

69. The Defence to this allegation was (and remains) in part a denial that Mr Rigby would have attended any such meeting on behalf of LSH (as opposed to on behalf of Wasps) and a denial that the representations were made.
70. In paragraph 15 of his first witness statement (dated 16 June 2003) Mr Simmonds says he was surprised when he saw the March 1996 ground valuation because he had thought the ground had potential for residential development, and that was why he raised it with Mr Rigby. The statement continued:

"I remember asking Mark Rigby about this valuation in a later meeting at NGJ where various members of the Executive Committee were present. His response was that the Wasps ground could only be used for recreational facilities. Mark told us that he had been involved with Brent Council for a considerable period of time. I recollect that his response to my query was along the lines that Brent Council would never consider a residential development on this site. I do not know the exact date of that meeting but believe it was some time in March 1996."

71. In his first witness statement (dated 16 June 2003) and in his oral evidence Mr Rigby took issue with this account (paragraphs 40 and 41) which had been heralded in Wasps letter of claim. But he acknowledged that he might have participated in a discussion about the use of the ground and residential development and if so he would have said, based on his protracted dealings with Brent Council and discussions with Mr Challinor, that it was "extraordinarily difficult" to get planning consent. He also said in answer to Mr Railton that he would have used Mr Atkinson's advice that the value had not changed between 1994 and 1996 and that in 1994 the ground was reserved for public and private open space "as a significant piece of reliance" in his view that it would be extraordinarily difficult to obtain consent.
72. In paragraph 11 of his third witness statement (dated 15 February 2004) Mr Simmonds offered a somewhat more precise recollection of the conversation with Mr Rigby and suggested it might have taken place on 11 March 1996.
73. I have, of course, heard both Mr Simmonds and Mr Rigby cross-examined on this evidence. Both stuck to their guns. There is no document which assists in resolving the conflict. But in the context of the sort of discussions which I can envisage taking place amidst all the concerns and stresses of this situation I think it improbable that Mr Rigby would have used words quite so absolute as Mr Simmonds suggests. Mr Evans' recollection (such as it was) was that Mr Rigby had referred to planning consent being "highly unlikely". I do, however, think it probable, as he really accepts if the question arose, that Mr Rigby did comment in March 1996, probably on 11 March, but at the time when the valuations had first become available and in discussing them to the effect that residential planning consent would be extraordinarily difficult to obtain and was not a realistic possibility. Some discussion would I think have been bound to take place then and I accept Mr Simmonds' recollection that he did raise the issue. The general expectation of those involved in 1994 would have been that the position had not changed and Mr Rigby's response would have been no surprise to them unlike Mr Simmonds whom, I accept, was surprised at the amount of the valuation. My conclusion is also supported by Mr Levison's evidence (paragraph 87) and Mr Rigby's view of the planning position described in the March 1994 LSH Valuation (paragraph 36) which he had no reason to think had changed. It is also, I think, significant that, as I find, this conversation took place in the general context of the prospects of raising funds for Wasps and was not specific to CGT.

The Role of Mr Rigby.

74. In view of my findings I do not think it makes any difference to the outcome of these proceedings whether or not Mr Rigby was acting on behalf of LSH or "as a Wasp" in receiving and passing on to Mr Atkinson and (probably) to Mr Hale Wasps' instructions to prepare a valuation in 1996 and in making the "Rigby Representations". It does not matter in relation to the instructions because, as I find, he informed Mr Atkinson (and Mr Hale) of the wider need for the current valuation and in doing so must at least have been acting as "the client". It does not matter in relation to the Rigby representations because in view of the findings about the instructions Wasps has no need to rely upon any representations save to the extent they support (as I think they do) my findings on the scope of the duty undertaken by LSH. Nonetheless I should address the question. LSH were to be paid for their work. Previous instructions had been sought and addressed by Mr Rigby himself on behalf of LSH: (paragraph 31). It was Mr Rigby who wrote formally to Wasps enclosing the 1996 Valuations and referring to oral instructions given to him: paragraph 67. No one else at LSH ever acknowledged or recorded the receipt of instructions at least prior to providing the valuations themselves. The sources of Mr Rigby's information on planning matters undoubtedly included matters relating to his own contacts with Brent Council when acting for Wasps and as a Wasp in the pursuit of the ground development application. But, as Mr Rigby acknowledged, they also included the March 1996 Ground Valuation itself, and his belief that Mr Atkinson would have spoken to the Council before preparing the valuation. He also said that he had never himself raised the question of residential development of the ground with the Council.
75. In my judgment Mr Rigby had taken upon himself on behalf of LSH the role of receiving instructions for and providing the valuations, albeit obviously to be prepared by others at LSH. If he then chose to answer queries about the valuations I think he did so also on behalf of LSH unless anything in the conversation made plain that was not the case. The mere fact that the question was raised at a Wasps' meeting would not, I think, affect that conclusion. Essentially, of course, Mr Rigby was doing no more in what he said than confirming what was readily to be inferred from the March 1996 Ground Valuation itself.

The Wasps AIM Proposal.

76. In conjunction with the valuations, tax advice and the planning application to develop the ground, in March NGJ were seeking to progress the fund raising proposals and were in touch with brokers to that end. By 20 March the Executive Committee had agreed proposals to be put forward to the Club Council. The planning application was then expected to be considered by Brent Council on 2 April. The main proposals were to transfer all the assets to Newco in consideration for a Golden Share which would "be equal to the asset value of the Club and would effectively block the cessation of Rugby Football activities at Sudbury in the future". "Old Wasps" would hold the Golden Share and run the social and amateur part of the Club and Newco would manage the professional side, commercial activities and the management of the ground and clubhouse. Newco was to issue shares for cash to finance the development of the ground and the professional team. The Council of Wasps approved these proposals on 27 March.

Ground Development Planning Consent.

77. On 2 April 1996 Brent Council granted planning consent for the ground development. Understandably, but ironically in the context of what happened not long afterwards, this was seen as a major triumph.

Progress of the Wasps Proposal.

78. Throughout April Wasps and its advisers, now including the brokers, Peel Hunt, were progressing the Wasps proposal for Newco and an AIM listing. The LSH March 1996 valuations were deployed to establish the CGT position. The accountants, Pannell Kerr Forster, were also engaged for the flotation somewhat to the annoyance of Mr Simmonds.

Conflict of Interest.

79. At about the beginning of May the Wasps proposal had reached the stage at which NGJ appreciated there was a potential if not actual conflict of interest between the Club and Newco which led to separate teams acting for each. NGJ was to act for Newco. Mr Rigby and Mr Evans were also to do so. Mr Montlake and Mr Cargill were to act for the Club with Mr Hallewell and others. The target was to agree terms by 16 May "at absolute latest".

The Club Rules.

80. Following advice from Mr Snowden, on 3 May a Circular Letter was prepared to Club Members proposing alterations of the Rules to be approved at an EGM to be held on 28 May. The letter explained the Wasps proposal as it was then formulated, including the transfer to Newco of all the Club's assets in exchange for the Golden Share which would be used to prevent Newco "allowing cessation of rugby activities at the highest achievable level". What needed to be negotiated at arms length were the Club's rights to use the ground and clubhouse and the name "Wasps" in connection with the amateur teams.

The Enquiries before Contract.

81. In the course of acting for Newco NGJ's property department (by Mr Phillips) raised several enquiries of the Club including one about the restrictive covenant. The enquiries were addressed to Mr Montlake on 8^th May. The terms of the covenant were set out accurately. Mr Montlake said, and I accept, that he did not respond to the enquiries and told Mr Phelops there was no need for them as the Club would be transferring only and precisely what it had to give. Mr Phelops said, and I accept, that NGJ were not much involved in property matters because Wasps had their own property expertise nor were NGJ asked to comment on or look at the March 1996 ground valuation. All he did was to look at the bottom line figure and use it in the drafting of the Business and Asset Sale and Purchase Agreement dated 10 July 1996.

The Draft Contract.

82. During May NGJ drafted a contract for the sale of the Club's business and assets to Newco. The draft provided for the assets to be sold to be itemised and valued including goodwill and the ground and houses. It was in the context of negotiating this agreement that the Club's team raised the question whether the ground should be the subject of a long lease to Newco rather than a sale. Peel Hunt advised against it. The question also arose in the context of the value of the net assets of the Club whether the ground development planning consent affected its value. The answer appears from some handwritten notes to have been that it did not because it was "not in use". The value of the ground and residential properties were agreed at the figures given in the LSH March 1996 valuations. Mr Rigby said he knew the valuations were going to be used in this context and thought it appropriate that they should be. The draft provided for the consideration to be apportioned to the assets in proportion to the value stated and to be adopted "for all purposes including tax and stamp duty".
MR WRIGHT COMES ON THE SCENE
83. There were growing concerns towards the middle of May about the prospects of a successful flotation and a potential crisis if funds were not in place to contract professional staff. The Club's overdraft was up to the limit. Mr Finch, a Club Member, approached Mr Wright to see if he might have an interest in investing in the Club. Coincidentally Mr Wright, a long-time supporter of QPR, was considering investing in QPR at the time. QPR had a stadium at Loftus Road. Mr Wright said, and I unhesitatingly accept, that at the time he had no interest in rugby let alone Wasps but was concerned that his interest in QPR might be a bad case of the heart ruling the head. It was whilst driving back from the Sudbury ground after a visit to it with Mr Finch that Mr Wright realised that the ground was only some 15 minutes away from Loftus Road and the idea came to him that if Loftus Road could be used for both QPR and a professional Wasps first team economies of scale could make an investment in QPR a more realistic proposition.
84. On 24 May Mr Wright wrote to Sir Patrick Lowry a letter subject to contract. The letter put forward a proposal to buy 49.9% of Wasps. The proposal was for a payment of £1.75m for a new issue of shares entitling Mr Wright to a 49.9% interest. He also offered to establish a credit line of up to £1m secured on the Club's assets to provide additional working capital. The Sudbury ground would remain as it was with some improvements and be used for all non-first team games and for training of all teams including the first team. The letter also stated that:

"The transaction would be subject to my being able to complete simultaneously the acquisition of … QPR … to enable Wasps to play First XV home games at Loftus Road. The Wasps members and I would then exchange our shares in Wasps and I would exchange the shares in QPR for shares in a new company … which would then be floated on the Stock Exchange."

85. The approximate outcome of the proposal was said to be that after flotation Mr Wright would retain some 30% of the new company and Wasps members some 15%.
86. The immediate result of this approach was that the EGM of the Club on 28 May was adjourned and negotiations began with Mr Wright although Mr Levison played the leading role on Mr Wright's behalf. On 28 May Mr Wright put forward a revised offer. The revision arose because of the urgency of the need for Wasps to contract players which meant that any transaction with Wasps might have to run ahead of Mr Wright securing the purchase of QPR. The revision provided that the proposal was not subject to the acquisition of QPR but would, in effect, be on the same terms if Mr Wright did acquire QPR prior to 30 June 1997 but if he did not "we would reassess all other options including redevelopment of Sudbury".
87. Mr Rigby and Mr Evans led the negotiations for Wasps at this time. At a meeting on 3 June they told Mr Levison Wasps would be looking for £2-3m for a 50% private placing as they had put a £4-5m valuation on Wasps. That valuation reflected the valuation of the ground at £832,500 and an estimate of goodwill which Mr Evans and Mr Rigby had valued on the basis of other known transactions at the time for the acquisition of rugby clubs. Saracens had been sold for £4m and Newcastle for about £3.75m although neither club owned their own ground. Mr Levison said, and I accept, that at this meeting Mr Rigby referred to the March 1996 Ground Valuation and to his belief that planning permission could only be obtained for recreational not residential development. Mr Levison said Mr Rigby expressed this opinion on a number of occasions. There is no doubt, as Mr Rigby readily accepted, that Mr Rigby himself relied on the March 1996 Ground Valuation in the negotiations with Mr Wright.
88. On 6 June Mr Wright wrote improving his offer to £2m plus £60,000 towards the costs already incurred by the Club on the proposed AIM flotation and the provision of a credit line of £1m as before. Mr Wright also agreed at a meeting that day to increase the offer to £2.5m provided he was able to purchase QPR. At an Executive Committee Meeting of Wasps that evening the Committee approved "the principles" of the agreement with Mr Wright.
89. The matter proceeded with NGJ and Harbottle & Lewis (for Mr Wright) exchanging draft heads of agreement and pre-contract enquiries. It was made clear that Newco would only assume declared liabilities of Wasps and questions also arose about the rights to be attached to the Golden Share in the new context.

The Heads of Agreement.

90. Non-binding Heads of Agreement were signed by the Trustees of Wasps and Mr Wright on 21 June 1996. Essentially and so far as relevant the document provided for the transfer to Newco of all Wasps' assets, for the liability of the Trustees to be limited to the assets of the Club, for Newco to assume the disclosed liabilities and liabilities arising up to completion in the normal course of business, for a golden share to be issued to the Trustees with the rights described in the next paragraph, for Mr Wright to subscribe for the same number of shares in Newco as would be the consideration shares provided to the Club for £2m or £2.5m if he acquired QPR, for the issue of further shares to raise part of the price of QPR but not to dilute the Trustees holding below 15%, and for Mr Wright to arrange various facilities to enable the players to be contracted. Mr Wright said, and I accept, that because of the urgent need for Wasps to contract players he was prepared to risk a breakdown in his negotiations to acquire QPR by committing himself first to Wasps. He was confident, however, that his purchase of QPR would proceed.

The Golden Share.

91. The rights attached to the Golden Share included:

"the right to be notified at least 40 days in advance before any transfer of all or substantially all of the rights in the Wasps name or, unless replaced by alternatives approved by the Club (approval not to be unreasonably withheld) all or substantially all of the land, buildings or facilities at the Sudbury ground or the business of, responsibility for and organisation of any of the 1^st XV the Vandals (2^nd XV), the under 21 and under 19 teams and the right to demand a shareholders meeting to consider any such transfer at which the holder of the golden share will, on a poll, have voting rights sufficient to give that holder a majority of the votes at the meeting. "

92. A similar provision came to be included in the Articles of Loftus Road Plc and gives rise to an issue as to its construction which is material to mitigation and quantum issues.
THE FINAL AGREEMENTS
93. The proposed terms were notified to the Club's members before the reconvened EGM which was in the event held on 1 July. The meeting itself overwhelmingly approved the alterations to the Club's Rules in the new circumstances.
94. By 9 July, Mr Montlake was getting concerned about the delays caused by the solicitors debating the terms of the proposed final agreements. His concern was that Mr Wright might walk away from the deal and he instructed Mr Phelops to accept what Harbottle & Lewis required.
95. On 10 July Mr Levison wrote to Mr Montlake expressing concern that "the financial status of the Club is not what we had anticipated at the time of the signing of the Heads of Agreement", and saying that he believed "we will have to substantially reduce the value we would attribute to the assets being transferred by Wasps into the new Company".

The Business and Asset Sale and Purchase Agreement.

96. It was on 10 July that the binding Business and Asset Sale and Purchase Agreement was signed whereby Wasps sold to Newco (now incorporated as Wasps Rugby Football Club Limited or WRFCL) all the Club's assets substantially in accordance with the terms of the Heads of Agreement. At this stage the Trustees acquired 100% of the issued share capital of WRFCL. The ground and residential properties were valued in the Sale and Purchase Agreement at £940,002. The £2 was attributed to two properties of no relevance to the proceedings. The balance of £940,000 was the sum of the LSH valuations dated 6 March 1996. The goodwill was valued at £145,000 in accordance with a valuation report by Business Valuation Services which was expressed to have been requested as a market value for CGT purposes at 10 July 1996.
97. Mr Levison said, and I accept, that at this time he had no knowledge of the DTZ valuation figures and that he only learnt of them on or after 12 July.

The DTZ July 1996 Valuations.

98. At a date which seems to have been about a week after the Heads of Agreement, Mr Wright instructed DTZ to value both the QPR Loftus Road ground and the Wasps Sudbury ground. There is a letter on Loftus Road Plc notepaper dated 11 July 1996 which "confirms" DTZ's instructions and which was, on the evidence, drafted by DTZ itself. The letter states that the valuations were required for incorporation into the accounts of Loftus Road Plc "and also for disclosure in a prospectus for the purpose of securing an AIM loan".
99. The Valuations are dated 12 July. They were prepared by Mr Wolfenden with the assistance of a Mr Mitchell (now deceased). They were prepared on a DRC basis because it was DTZ's opinion that such properties were rarely sold on the open market other than as a going concern. In relation to the valuation of the land as distinct from the buildings the Valuations referred to the guidance notes in the Red Book:

"… the guidance notes indicate that where there is no recognisable market for the land under its existing use, then it would be appropriate to have regard to the prevailing uses surrounding the property and assuming, if reasonable to do so, that consent would be granted for such use. In respect of both Rangers Ground and the Wasps Ground, the surrounding areas are predominantly residential and in our opinion it is not unreasonable to assume that planning consent would be granted for such a use. …. In each case we have assumed that there will be no significant Section 106 requirements."

100. On this basis DTZ valued the Loftus Road stadium at £11.9m and the Sudbury ground at £5.7m. The valuations were expressed to be subject to "the qualification" that it was for the directors to decide if the businesses were sufficiently profitable to be able to carry the properties in the balance sheets at the full DRC value or whether some lower figures should be adopted. Mr Wolfenden's notes show that his figure was made up of about £1m for the buildings, £150,000 for the two residential properties, about £4.5m assuming residential development of the full freehold area of 8 acres at £550,000 an acre, and £25,000 for the leasehold land. Mr Wolfenden consulted DTZ's planning department before concluding, in effect, that there was a very real prospect of a residential planning permission on the whole of the freehold land.
101. In late July and early August 1996 a number of documents were negotiated and agreed to take forward the plans for the flotation of Wasps and QPR. Mr Wright's acquisition of QPR had proceeded and was concluded at the beginning of August. The overall effect of the agreements and placing was that Wasps' professional first team, ground and liabilities were exchanged for a minority interest in Loftus Road Plc and entrenched rights by way of the Golden Share for the Club to use the Sudbury ground or a suitable alternative.

The Licence Agreement.

102. On 1 August 1996 Wasps and WRFCL concluded a Licence Agreement the purpose of which was to licence Wasps to use the Sudbury ground which was now owned by WRFCL. The detailed terms of the licence are not material but there were two provisions which have a bearing on quantum issues.
103. Clause 4 addressed the obligations of WRFCL ("the Owner") to Wasps ("the Licensees") should it dispose of the ground. It provided that:

"If at any time the Owner shall dispose of or otherwise part with possession of the whole or a substantial part of the Ground then the Owner shall provide the Licensees with alternative pitches and facilities of such standard and on such terms as the licensees and the Owner shall agree and substantially on the terms (mutatis mutandis) set out herein which terms shall include the provisions of this Clause 4 provided that the Owners costs in respect thereof shall not in any event exceed … £12000 per annum."

104. Clause 6.8 provided that:

"The Owner shall pay to the Licensees an annual sum of not more than … £20,000 … as a contribution to the Club's offices being well organised to meet its obligations under this Agreement by four equal payments in advance …."

The Articles of Association of Loftus Road Plc and The Golden Share.

105. On 2 August Loftus Road Plc adopted new Articles of Association by a Special Resolution. The capital of the Company at the time was £21m divided into 41,999,999 Ordinary Shares of 50p each and one Preference Share of 50p. The rights attached to the Preference Share (the Golden Share) were set out in Article 5 and included a veto if WRFCL sought to remove or restrict its power to carry on the activity of a professional rugby football club at the highest level and a right to appoint two "Preference Directors". A question arose, again in the context of quantum issues, as to whether it was open to Wasps to "sell" one of the two Preference Directorships thereby enhancing the value of the Golden Share. I think it is manifest from the terms of Article 5 and the context in which the new Articles came into being that the purpose of these provisions was to enable the two directors to monitor and safeguard the interests of Wasps. The Golden Share could only be transferred to a Trustee of Wasps. It would have been contrary to the purpose of the provisions and in my judgment impermissible for Wasps to have "sold" a directorship to any third party.
106. Article 5(E) reflected the golden share provision in the Heads of Agreement (paragraph 91). It provided that:

"The Company shall give the Preference Shareholder not less than 40 days prior written notice of any intention to do any of the following:

(i) transfer … all or substantially all of the rights in the WASPS name which the Company has at the date of adoption of these articles;

(ii) transfer all or substantially all of the land, buildings or facilities at the Sudbury ground at Repton Avenue, Wembley, Middlesex and known as WASPS Football Ground ('the Ground') used by the Club at the date of adoption of these Articles (which shall require either (i) the approval of the Preference Shareholder unless the Ground is replaced by alternative facilities with a Preference Shareholder's approval (not to be unreasonably withheld) and which consent or refusal is also not to be delayed beyond 14 days of request in writing; or (ii) the approval of the Company in general meeting as set out in this sub-article 5 (E);

(iii) transfer the business of, responsibility for and organisation of any of the 1^st XV, the Vandals (2^nd XV), the under 21 and under 19 teams.

Upon receipt of such notice, the Preference Shareholder shall have the right to demand a General Meeting for the purposes of considering any such transfer and, upon such demand, the Secretary shall convene the meeting for a date not later than 21 clear days from such demand being received.

At any such meeting, the Preference Share shall carry such number of votes as is equal to 51% in aggregate of all the votes capable of being cast on any resolution relating to the proposed transfer.

The Directors shall have no power to make any transfer of any or all of those assets as set out and provided for in this sub-article 5(E) without the requisite sanction of the Members in accordance with sub-article 5(E)."

107. This provision gives rise to the issue of construction to which I referred in paragraph 92. Does it provide for an unfettered veto over any transfer of "all or substantially all" of the Sudbury ground by WRFCL or a qualified veto which arises only if "alternative facilities" are not provided or reasonably rejected? LSH submitted that it gave rise to a right of veto on any transfer of all or substantially all of the Sudbury ground and contended that it therefore offered a powerful lever to be used when Loftus Road sought to sell the ground with the benefit of planning permission. Wasps contended that provided an alternative suitable ground was made available then there was no veto.
108. As Mr Phelops readily accepted the drafting (in fact done by Harbottle & Lewis) is not as clear as it might be. Nonetheless in my judgment the provision is only a qualified veto. If it were an absolute veto the use of "either" and "or" in sub-paragraph (ii) makes little sense and the entire reference in sub-sub-paragraph (i) to "alternative facilities" would be otiose.

The Share Exchange Agreement.

109. On 5 August a Share Exchange Agreement was signed on behalf of Wasps, WRFCL and Loftus Road Plc. At this time 17.7m of the 41,999,999 50p Ordinary Shares in Loftus Road Plc had been issued and fully paid in cash. By the Agreement the Trustees of Wasps sold the entire issued share capital of WRFCL to Loftus Road Plc. The consideration was the allotment to the Trustees of 4,899,999 50p shares credited as fully paid and the subscription by the Trustees of 50p for the Golden Share. The allotment was reduced by 100,000 shares to reflect an increase in the liabilities of Wasps being assumed by Loftus Road Plc which totalled £772,000.
110. Clause 9 of the Agreement provided for the liability of the Trustees for breaches of the Agreement to be limited to the assets of Wasps, including the shares in Loftus Road Plc. In support of this, it was provided that the share certificate in respect of the allotted consideration shares would be lodged with NGJ who would be given irrevocable instructions in relation to it in a form approved by Loftus Road Plc.

The Option Agreement.

111. Also on 5 August, the Trustees, Loftus Road Plc and Mr Wright entered into an Option Agreement whereby Mr Wright granted the Trustees an option exercisable at any time up to and including 31 December 1996 to require him to procure a purchaser to purchase up to 1m Ordinary Shares in Loftus Road Plc at 50p a share. Wasps was thereby assured of £0.5m towards its working capital needs.

The NGJ Irrevocable Instructions Letter.

112. The letter required by Clause 9 of the Share Exchange Agreement was also dated 5 August. The instructions relating to the share certificate lodged with NGJ required NGJ to retain the certificate until such time as they were instructed by Wasps that they had exercised the option under the Option Agreement or that Wasps wished to sell the shares or part of them "to meet any liability of the Club or of ourselves as Trustees of the Club". If part of the shares were sold a certificate for any balance was to be lodged on the same terms. The letter concluded:

"The instructions set out in this letter may be varied with the consent of (Loftus Road Plc) but we have agreed with (Loftus Road Plc) that we will not vary these instructions without its consent for a period of eighteen months from the date of this letter…."

113. The effect of this 18 month restriction on the value of the consideration received by Wasps is in dispute and material to quantum issues. It meant, subject to its terms, that the holding could not be sold before 5 February 1998.

Wasps learn of the DTZ Valuation.

114. Once Wasps had concluded the August agreements the next step was the flotation of Loftus Road Plc. The DTZ valuation of the Sudbury ground was used to revalue Wasps' assets in the flotation. It was in the course of negotiating the terms of the Prospectus with the interests of Wasps in mind that Wasps first learnt of the DTZ Valuation. It was referred to by Mr Montlake in a report to the Policy, Finance and Advisory Committee dated 3 October 1996. The float price of shares had by then been fixed at 72p. Mr Montlake noted in his report that "one of the principal factors which has increased the value of our shareholding is the re-valuation of Sudbury from £800k to over £5m," and that this could have a serious impact on the Club's future CGT liability.
115. The DTZ valuation also caused some concern in LSH. The matter was the subject of an internal note by Mr Maude, the senior valuation partner, dated 8 October 1996 addressed to Mr Rigby and Mr Atkinson. Mr Rigby had a particular concern as he had been appointed as one of the "Wasps" directors of Loftus Road Plc and as such was required to sign the Prospectus referring as it was intended it should to the DTZ valuation. Mr Maude expressed some roundly dismissive views of the DTZ valuation. Part of his reasoning was that he could not see that planning permission for residential use would be granted and the existence of a restrictive covenant in the terms referred to by Mr Atkinson in the March 1994 LSH valuation. DTZ had in fact set out the correct terms of the covenant but Mr Maude described that as "clearly a mistake". Mr Maude's conclusion was that DTZ's figure of £5.7m was so far removed from any figure which might be achieved in the open market that "it can only be wrong, and I suspect is a cynical use of DRC to achieve a massively inflated figure". As Mr Rigby agreed, there is nothing in this note to suggest that the LSH March 1996 Ground Valuation and the DTZ valuation had any materially different purpose nor to suggest that the March 1996 LSH Ground Valuation was itself an inappropriate reference because it was for CGT purposes only. There was also some evidence that Mr Rigby had made some disparaging comments about the DTZ valuation in conversations with Mr Montlake and Mr Simmonds. No doubt there was embarrassment but I do not think any importance should be attached to this evidence as Wasps were already committed to the flotation at this time and it was in their interests that it should succeed.
THE FLOTATION.
116. On 16 October an AIM Admission, Placing and Offer Agreement was concluded between Loftus Road Plc, Mr Wright, Wasps and Peel Hunt. It provided for the issue of 17,370 new ordinary shares of 50p which Peel Hunt agreed to use its reasonable endeavours to place on the terms of the Agreement. The Placing Price was to be 72p but members of Wasps could subscribe at 67p a share.
117. The Flotation took place on 24 October. It was successful. The shares went to a 2.5% premium when issued. The Prospectus recorded the pro forma net assets per share as 73.4p. The DTZ Valuations were set out in full and included in the proforma net assets statement on page 48 of the Prospectus. Mr Rigby signed the Prospectus as a director of Loftus Road Plc. He said, and I accept, that he would have discussed the matter further with Mr Maude and was satisfied that because the ground was surrounded by residential property an assumption of planning consent could be made and provided the basis of the DTZ valuation was made clear in the Prospectus (as it was) then he could properly sign it.

The Sale by Wasps of 1 million shares

118. Following the flotation Wasps was concerned that all its assets were now Loftus Road Plc shares. Mr Montlake asked Mr Wright to extend the Option Agreement but instead of doing so Mr Wright (to Wasps' advantage) arranged for the sale of 1 million of Wasps Loftus Road Plc shares at a price of 65p per share less a small commission. The sale was completed by 18 December 1996 and the Option Agreement was allowed to lapse. The proceeds of the sale (£647,990) were used to pay off Wasps' creditors and to provide working capital.

The DTZ December 1996 Valuation for Barclays.

119. In late October 1996 Barclays Bank (as bankers to Loftus Road Plc) instructed DTZ (Mr Wolfenden) to prepare an OMV and "the Estimated Realisation Price" (ERP) of the ground and the Loftus Road Stadium. An OMV assumes a sale on the date of valuation. An ERP assumes the property is first marketed on the date of valuation. The valuation is dated 6 December 1996. It gave the OMV of the ground for alternative use as £4m and the ERP assuming a sale in 6-9 months also as £4m. As Mr Wolfenden put it that was the amount which in his opinion a developer would pay for the ground in December 1996.
120. The body of the valuation under the heading "Valuation Approach" included the statement that:

"In the case of the freehold of the Wasps ground, this, in our opinion, has a 50-75% prospect of achieving planning consent for a residential use …. a residential use is a use that conforms with the surrounding area. One consideration that would need to be taken into account would be the requirement to provide, within any residential development, an element of social housing and other possible public works …."

121. Mr Wolfenden explained that this valuation did not include a value for the buildings (unlike the DRC valuation) and built in a risk or discount factor for the probability of obtaining planning consent, albeit it was a small discount because, as he put it, a 50-75% prospect was a "good likelihood" and certainly did not justify a 25-50% discount. He said that at the time residential developers were coming out of the malaise of the early 1990s and DTZ believed there would have been sufficient interest and demand from developers to bid competitively for the site.

The future of Sudbury.

122. At a board meeting of Loftus Road Plc on 2 December 1996 a suggestion was made that QPR's training ground at Acton might be upgraded and used by Wasps "thus liberating Sudbury for sale". Mr Wright said it was the chance of buying and improving the Acton ground that was the trigger for considering the disposal of Sudbury. Mr Rigby and others were asked to visit the ground at Acton to assess its suitability. Mr Rigby is also recorded as pointing out that "any potential sale of Sudbury would involve Brent Council as far as any planning permissions were concerned and that this could be difficult".
123. On 10 March 1997 Mr Rigby on behalf of LSH wrote to Loftus Road Plc expressing disappointment that LSH had not been considered for the provision of advice in connection with the possible sale of Sudbury. Mr Rigby extolled the virtues of the specialist Planning Division of LSH and his own "vast reservoir of knowledge and goodwill" with Brent Council.
124. Mr Rigby's letter bore fruit. On 10 April he was asked to discuss with the Chief Executive of Loftus Road Plc the prospects of planning consents, likely costs and valuations. Loftus Road Plc had received an unsolicited approach from a party wanting to buy Sudbury conditional upon obtaining planning consent. Mr Rigby again expressed the view that securing planning consent for an alternative use would "not be an easy task" but suggested using the LSH planning and development departments (Mr Hopkins and Mr Bianco) whilst he would "co-ordinate the instruction and respond to any queries" Loftus Road Plc might have. Mr Rigby also said that it would be "helpful to incorporate legal advice" in a report from LSH "due to the fact that I am aware that there is a restrictive covenant on the freehold part of the land which will need to be removed in order to unlock the ground's redevelopment potential". Plainly Mr Rigby still believed that was the case.

The LSH Report for Loftus Road Plc.

125. On 10 June 1997 Mr Rigby wrote to Loftus Road Plc enclosing LSH's "Draft Report" on the Sudbury ground. In addition to referring to Mr Hopkins and Mr Bianco Mr Rigby said the Report also had "input" from Mr Atkinson. The report correctly described the restrictive covenant in the 1928 transfer deed and it stated that "the planning is by no means clear" but residential use would be the least contentious. Various indications (no more) of value were given including residential values for a 5 acre site in the order of £550,000 to £600,000 per acre.
126. The draft report included a "Planning Report" which itself included a summary of the relevant policies of Brent Council derived from the Unitary Development Plan (UDP) which the Council had adopted in February 1996. It rightly noted that the freehold part of the ground was not specifically identified within the UDP and a number of relevant Council policies:

i) Policy STR23 to the effect that the Council would not normally allow the development of any open space where it would create or cause a deficiency of open space.

ii) Policy OS12 to the effect that the Council would normally refuse development resulting in a loss of private open space where there was a deficiency of local public open space.

iii) Policy OS13 which provided that:

"outside areas of local open space deficiency the development of private open space or playing fields may be permitted provided that their loss is compensated for:

a. by a substantial part of the site being laid out and made available as public open space … and/or

b. by means of a planning obligation regarding contributions towards the provision of replacement open space, improvements to existing open space or some other form of relevant compensatory provision."

127. The report also correctly recorded that the ground fell outside the areas of local space deficiency and "therefore Policy OS13 is applicable" and that one of the overall aims of the UDP stated in Policy STR3 was that where land was surplus to other requirements a priority alternative use would be housing including where practical an element of affordable housing. Mr Hopkins said Policy OS13 was "particularly relevant" when assessing the potential development of the ground.
128. The "Analysis" section of the planning report referred to two recent appeals in the vicinity one in relation to an Abbey National sports ground at Kenton and one by GEC relating to former playing fields in Wembley. The Abbey National appeal had been dismissed in accordance with the recommendation of the Inspector and the refusal of Brent Council. The Inspector considered the proposal failed the test of Policy OS13 in that there would be no compensation for loss of the sports ground. The GEC application had been called in and the outcome of the Public Inquiry was still awaited. It involved housing on 11 acres, public open space on 9 acres and employment uses on 1.1 acres. The site fell within an area of public open space deficiency but the proposal to transfer 9 acres to public open space removed the deficiency. Brent Council had been "minded to approve" the GEC proposal.
129. After discussion with the Council the planning report concluded that:

"On Planning policy grounds, in the light of the recent appeal cases in the area, adopted UDP Policy and Government advice, the prospect of a residential development on part of the site – with some oiling of the wheels in terms of legitimate community benefits aimed at compensating for the loss of existing playing fields – is not beyond the bounds of possibility. That having been said, securing such development will not be an easy ride, not least because of the high profile of the Club. Any proposal would need to offer quality sports pitches and associated facilities that will meet the longer term needs of the community for sport and recreation on part of the site."

130. On 30 June LSH advised Loftus Road Plc that the estimated costs of a Planning Application would be about £20,000 and of an appeal involving an Inquiry about £55,000.
131. On 7 August Mr Bianco wrote again to Loftus Road Plc "to provide our thoughts on the percentage chances of gaining planning consent for different schemes". The "thoughts" were:

"a) As to the strategy outlined in our draft report to you namely for the development of the practice ground and the 2^nd XV pitch – 50%.

b) As to the above but also including the 1^st XV pitch – 25%.

c) As to 100% cover of the site – less than 5%."

132. Scheme a) related to about 5 acres. As Mr Rigby agreed, a 50% chance was a good prospect and worth pursuing. The GEC decision permitting the development was not announced until 24 November 1997.

The Planning Application.

133. At a Loftus Road Plc Board Meeting on 28 May 1998, it was agreed that LSH should seek permission to develop 8 acres of the freehold ground with the likely return of the leasehold land and the clubhouse to the Council. It was noted that GEC had recently succeeded in obtaining permission for its proposal which had "significantly enhanced the developability" of the ground. Mr Rigby estimated development of the 5-acre site would yield some £3.75m and of the 8-acre site some £7m less £2m for "the Section 106 payment". The outline planning application for about 7.5 acres together with detailed Section 106 proposals were submitted on 6 July 1998.

Use of the Golden Share.

134. During the course of the planning process Wasps sought advice from NGJ about the Club's rights should Loftus Road Plc seek to sell the ground. Informal advice was given by Mr Elgar at a dinner on 29 March 1999 that a sale of the three pitches on which permission for residential development was sought would be a disposal of "substantially all" of the Sudbury ground and so would require the consent of the Trustees. At the time the proposal by Loftus Road Plc was that the undeveloped land at Sudbury would be sufficient for the Club, but the Club was concerned whether that was true. By this time the Club was only running 4 teams and two pitches would have been sufficient.
135. Mr Elgar wrote formally to Mr Montlake about the terms of the Golden Share on 16 April 1999. He said of Article 5(E) (paragraph 106) and the reference to Loftus Road providing reasonable alternative facilities for Wasps if it sold the ground:

"It is arguable, on the strict wording of the Articles of Association, that even in these circumstances the Trustees can require the sale of the facilities at Sudbury to be put to a resolution of the members of Loftus Road on which the preference share held by the Trustees will carry 51% of the votes. However that was probably not the intention."

136. Both Mr Montlake and Mr Phelops said that Mr Montlake had sought such a letter to use in Wasps' interests in negotiations with Mr Wright if they needed to do so. It was, however, as far as NGJ felt they could go. Both Mr Phelops and Mr Elgar in fact believed such an argument was wrong. Mr Montlake also said that to use the Golden Share as a lever to try to extract a share in the sale proceeds from Loftus Road Plc was "not attractive" and it was more in Wasps' interest to be constructive and keep Mr Wright's goodwill so as to secure the provision of acceptable alternative facilities for the Club. As Mr Montlake said that proved to be a correct judgment as in the event new facilities were indeed provided first at Sudbury and then at the QPR training ground at Acton. "Arguable" it may have been but also, in my judgment, wrong (paragraph 108). Moreover, Mr Levison also understood Article 5(E) as I construe it and would not have been impressed by an argument to the contrary.

The Planning Appeal.

137. Despite being recommended for approval by the Council's officers, on 13 January 1999 the Council refused the application by Loftus Road Plc to develop the ground. The company appealed and an Inquiry was held in May 1999. Loftus Road was represented by leading counsel and planning specialists. The Council's reasons for refusing the application were that the development was considered to be detrimental to the supply of sports pitches within the borough and to the public open space at Vale Farm and traffic concerns for the streets adjoining the site. On 27 July 1999 the Inspector allowed the appeal and granted conditional planning permission.
138. The appeal proposals included the demolition of 31 Repton Avenue to provide access to the development; reference to a "fallback position" of developing the site in accordance with the still extant permission for a new stadium, and a completed section 106 planning agreement under which Loftus Road Plc undertook to make a financial contribution to the Council to a total value of £1,197,000 (including £1m for sporting facilities) to provide community benefits valued at £231,000 and to ensure that 35% of the dwellings would be "affordable" and transferred to a registered social landlord approved by the Council. The agreement included making the clubhouse available for use by local community groups on 2 nights a week and allowing it and the remaining grounds to be available for use by the public (as well as Wasps) for 3 years.
139. The Inspector expressed his overall conclusions in these terms:

"The loss of sports pitches and recreational open space would be contrary to the general aims of UDP and strategic policy, but would be adequately compensated for in this instance by the substantial package of sporting benefits forming part of the planning obligation, for which the UDP makes allowance.

Subject to the imposition of planning conditions, the proposed development would not cause unacceptable harm to the character and appearance of the area; it would be likely to have less impact than the fallback position in this regard.

The impact of the development on the free and safe flow of traffic in the locality would not be so adverse that it would warrant refusal of planning permission; it would have certain traffic and highways advantages over the fallback scheme.

The development would benefit the quantitative and qualitative supply of housing in the area in a sustainable location, in line with the aims of strategic policy and the UDP. The housing benefits would not arise in the fallback scheme.

The planning obligation would also ensure that the development would satisfy UDP policy with regard to educational and play space provision."

140. It was Mr Bianco's evidence that two factors were material to the ultimate success of the application. First, Leading Counsel's strategy of comparing the proposal to the consequences of implementation of the ground development (the fallback position) and second the fact that Loftus Road Plc was able to fund the conduct of what was a lengthy and expensive process.

The LSH September 1999 Valuation.

141. Loftus Road Plc instructed LSH to value the Sudbury ground again in August 1999 following the grant of planning permission. Mr Atkinson and Mr Bianco prepared the valuation on an OMV basis. The values given were not less than £5.7m for the residential development site, £150,000 for the clubhouse and remaining pitches, and £120,000 for 77 Eton Road. The Valuation records that offers for the development site had been received in January 1999 (subject to consent) of £7.4m and that higher offers had been received since then. Mr Bianco said the market for such developments had seen dramatic increases "in the recent year."

The Sale to McAlpine.

142. On 23 December 1999 Loftus Road Plc agreed to sell the development site to Alfred McAlpine Homes Holdings Limited for a net £8.9m.

Loftus Road Plc.

143. Loftus Road Plc was not a success. In particular QPR did not prosper in either football or financial terms. The ordinary shares were listed on AIM from 24 October 1996 until 31 March 2001 when the listing was cancelled. The company went into administration on 2^nd April 2001. Wasps held 3,899,999 of the shares after arranging the placing of 1m shares through Mr Wright in December 1996. Subject to its terms, the NGJ Irrevocable Instruction letter meant these shares could not be sold before 5 February 1998 (paragraphs 112 and 113) The maximum price shares in Loftus Road Plc achieved was 106.5p in early January 1997 but the price on 5 February 1998 was 26p. At 31 March 2001 the price was 3.75p.
144. Loftus Road Plc came out of administration on 27 May 2002 by which time the interest in Wasps had been disposed of leaving only QPR. The shares were not re-listed. Wasps finally sold the Club's remaining shares in August 2003 realising the sum of £106,315.65. The Sudbury clubhouse was sold by Loftus Road Plc in about October 2003 for £255,000 together with a 30% uplift in development value should planning permission be obtained either for social housing or for a health club. There is no evidence about the circumstances in which this sale was made nor about the condition of the clubhouse at the time. At a very late stage in the proceedings Wasps contended that the Club would also have received at least this further sum in addition to the £8.9m had they received a proper valuation.
THE VALUATION EXPERTS

Matters Agreed

145. It is agreed by the experts that between the dates of the March 1994 LSH Valuation and the March 1996 Ground Valuation the designation of the ground by Brent changed from "Public and Private Open Space/Playing Fields" to "White Land" meaning it was undesignated.
146. They also agreed that the March 1996 Ground Valuation should have been carried out by LSH on an OMV and not a DRC basis, and that in undertaking such a valuation a reasonably competent valuer would make proper planning enquiries.
147. On the assumptions that:

a) Residential planning consent existed for the freehold site or a substantial part of it;

b) There was no covenant restrictive of such a development;

c) Appropriate Section 106 allowances were made; and

d) Deductions were made to provide for access to the site over 31 Repton Avenue

The valuations at March 1996 of Mr Lomax (£3.96m) and Mr Pryor (£3.85m) are sufficiently close to be effectively the same.

148. To arrive at his valuation, Mr Lomax took as his starting figure 8.25 acres at £575,000 an acre but deducted from it £75,000 an acre for Section 106 costs (a total of £618,750) £90,000 for the costs of access and £75,000 for planning cost. It was to the resulting figure of £3.960m that he applied his discount factor and then deducted a further sum of £92,226 for transaction costs.
149. Mr Pryor arrived at his valuation by assuming 20% of the development would be for affordable housing, calculating an effective net floor area of development on a net developable area reduced to 6.02 acres to reflect that, and applying an average sale price of a new property of some £131,000. It was to the resulting figure of £3.85m that he applied his discount factor and (if relevant) a 25% deduction for a restrictive covenant.

Matters in Issue.

150. The major areas of difference between the valuers were that:

i) Mr Lomax considered there was a reasonable prospect of obtaining planning consent provided a sufficient section 106 allowance was made. Mr Lomax put the chance of success in March 1996 of an application similar to the one which did succeed at "at least 50%". Mr Pryor considered the prospect of consent to be "poor", which he said meant significantly less than 50% and only a 10% or 20% chance. Mr Lomax allowed for a delay of 2.5 years and a discount rate of 15% pa to reflect his assessment of the prospects and rising values to give a value of £2.7m. Mr Pryor adopted a 10 year delay and used a discount rate of 10% pa to give a value of £1.534m. That figure was made up of £3.85m x 0.3855 plus £50,000 for the leasehold land.

ii) Mr Lomax valued the leasehold land and clubhouse at £88,000 and £630,000 respectively. Mr Pryor allowed £50,000 for both.

iii) Mr Lomax made no discount for the restrictive covenant. Mr Pryor adopted a 25% discount to "buy off" the covenant holder. They also disagreed as to whether a reasonably competent valuer would have sought clarification of the terms of the covenant if it was material to his valuation.

151. I will address each of the matters in issue.

Planning Prospects.

152. The difference of view on planning prospects has, of course, to be considered without the benefit of hindsight and in the context of March 1996. Nonetheless at that time Brent Council had recently designated the ground "White Land" and adopted OS13. It is admitted that LSH were negligent in not making enquiries of the Council which would of course have revealed this information if it was not already available to LSH. Moreover DTZ, with not much greater information available than was available to LSH, concluded in July 1996 that there was a very real prospect of a residential planning permission on the whole of the freehold site (paragraph 100). By June 1997, again with little further information, LSH themselves were advising Loftus Road Plc that the prospect of residential development on part of the site was "not beyond the bounds of possibility" (paragraph 129) and by early August 1997 that the chances of permission on 5 acres of the site were 50% (paragraph 131).
153. Whilst it is true that the eventual success of the GEC application may have been seen to improve the chances of success for the ground (paragraph 133) the improvement would be on the 50% (and 25%) chances previously put forward before the GEC decision was known: paragraphs 131 to 132. It is also true that the success of the appeal in respect of the ground turned at least in part on the fallback position (paragraphs 139 and 140) whereas in March 1996 permission for the ground development had not yet been obtained albeit it was known a decision could be expected soon and attendances at the existing ground were not negligible and likely to increase.
154. In my judgment had LSH addressed, as they should have done, the planning prospects in March 1996 they would have concluded that they were markedly better than "poor" and of the order which DTZ in July 1996 and they themselves concluded in August 1997. I accept Mr Lomax' evidence on this issue in preference to the evidence of Mr Pryor. In particular I think Mr Pryor was wrong to address the issue on the basis that there was a presumption against development of the land, a view he was unable to sustain in his oral evidence. He also had considerable difficulty in explaining and justifying the discounts he had used. It follows that a proper valuation itself (whether or not limited to "CGT purposes") should not have been at the level it was but should have drawn Wasps' attention to a much enhanced valuation of the ground because of the real planning prospects.

The Restrictive Covenant.

155. I do not think any discount is appropriate for a restrictive covenant. Had the valuation, as it should, referred to the planning prospects and had LSH thought a covenant a material factor in the amount of the valuation in that context then I think the valuation should have drawn attention to it explicitly as Mr Lomax said and, in answer to Mr Waksman, Mr Pryor agreed. Mr Montlake would then, as I find, have ensured that the true position was known: see paragraph 63.iv). It is agreed that the actual covenant would have had no effect on a valuation. Despite the mistaken reference to the covenant in the March 1994 LSH Valuation it is accepted (albeit for different reasons) that it was not material to that valuation: paragraph 40. If, in contrast, Mr Atkinson did consider it material to valuation in March 1996, let alone to the extent of 25%, or would have done so if he had carried out a proper valuation, then I think the materiality of the covenant to the new valuation should indeed have been clearly highlighted and if highlighted would then have been seen for the irrelevance it was.

The Leasehold Land and Clubhouse.

156. There was no prospect of development of the leasehold land because it was designated Public Open Space and its use was restricted by the terms of the lease. Mr Lomax valued it at £20,000 per acre, a figure with which Mr Pryor agreed. The valuers agreed that the clubhouse would not form part of any proposed development. Mr Lomax valued the clubhouse at £630,000 on the basis of a current use or replacement cost valuation discounted by 35% for the age and condition of the building. Mr Pryor, in his first report, simply adopted a figure of £50,000 for the leasehold land and made no reference at all to the clubhouse. In his second report Mr Pryor said he had taken the view that any other part of the site not required for redevelopment would not have any value because it would have been required as part of the Section 106 agreement. I think there was an element of retrospective justification in this analysis by Mr Pryor for what was probably a simple omission in his first report. I can see little justification for assuming the clubhouse, whatever its value, would simply be handed over for public use when the leasehold land it adjoined was to be retained and was valued. Albeit a very late suggestion, I also agree with Mr Lomax that granted Mr Pryor was applying a discount value based on a 10 year delay in obtaining planning consent it is even less justifiable to allow nothing for the availability and use of the leasehold land and clubhouse which would notionally be available until redevelopment began and could be used to offset the cost of any delay in obtaining planning consent. Mr Lomax calculated a rental value for the clubhouse of £63,000 p.a. pointing out that this was similar to a figure arrived at by decapitalising by a yield of 10% the various DRC valuations of the clubhouse: his own £630,000; LSH, £540,000 (paragraph 37); DTZ, £861,000; Mr Pryor, for all the buildings £808,275. As I have noted (paragraph 144) the clubhouse was in fact sold in late 2003 for £255,000 plus a possible uplift but there is no evidence about its condition at that time.
157. There can be no 'right' answer to the questions which these disputes raise. But bearing in mind that both valuers had expressly addressed the Section 106 issues (in Mr Pryor's case in terms of an allowance for social housing) in valuing that part of the site to be developed I do think a capital value should be attached to the leasehold land and the clubhouse. I see no reason not to adopt the figure of £20,000 an acre and so Mr Lomax' figure for the 4.4 acres of leasehold land of £88,000. I am not however convinced that the capital value of the clubhouse was as high as the figure of £630,000 which Mr Lomax put forward in his first report and I think some allowance should be made for the likelihood that it would be required at least to some extent for Section 106 purposes. Doing the best I can, I think a reasonable valuation would have been £500,000.
CONCLUSION
158. It follows from the foregoing that in my judgment the total valuation of the ground which a non-negligent valuation in March 1996 would have produced would have been:

Development site (Mr Lomax) £2,700,000

Leasehold land (Mr Lomax) 88,000

Clubhouse 500,000

£3,288,000

159. It is of course the case that an actual non-negligent valuation could have been within a bracket of figures. Mr Pryor suggested a variation in accuracy of up to 20% is realistic in considering whether or not a valuation is negligent. That seems to me to be a somewhat high figure if it means 20% up or down but in a case such as this the court is entitled to adopt a mean figure on the basis that it is such a figure which would and so should probably have been reported upon: Lord Hoffmann in SAAMCO [1997] AC 191 at 221-2. The appropriate figure in my judgment is £3.25m. The figure in fact provided by LSH was £832,500. The difference is £2,417,500.
160. The figure would have been an open market value figure and so the figure which would have been paid on an unconditional sale without any profit sharing deal. In effect the discounts are applied so that the risks of planning consent are transferred to the purchaser.
THE ALTERNATIVE (OR HYPOTHETICAL) TRANSACTION.

The Claim.

161. In the letter of claim dated 15 April 2002 NGJ asserted that had Wasps been aware of the DTZ valuation of £5.7m Wasps "would have borrowed from the bank against the substantial asset value so as to fund the cost of the first XV. Thereafter the sale proceeds would have been used to purchase another ground at a different site".
162. By the time the Amended Particulars of Claim were served (28 November 2003) Wasps were in possession of the reports of both Mr Lomax and Mr Pryor to the effect that a proper valuation of the ground would have been £3.5m (Lomax) or £1.534 or £1.163m (Pryor). It was there alleged (in paragraph 31) that had Wasps been informed of any of these values they would inevitably have known that there were prospects of obtaining planning permission for the development of at least part of the ground and in those circumstances ("the hypothetical circumstances"):

"(2)(a) The Claimants would not have transferred the ground to WRFCL because any such transfer would have triggered a capital gains tax liability for the Claimants (as the Defendant well knew) which they did not have the resources to meet.

(b) The Claimants would have negotiated a deal with Mr Wright and Loftus Road plc for the re-financing of the Claimants without transferring to WRFCL and/or Loftus Road plc the Ground. Mr Wright will say at trial that, so far as the Claimants were concerned, his main interest in the transaction involving Wasps and QPR was the rugby first team and its ability to play rugby at Loftus Road (QPR's home ground) which was only approximately 15 minutes drive from the Ground and the economies in overheads which could be derived from the arrangement. Mr Wright will say at trial that accordingly he did not approach the deal from a property perspective and would have been satisfied with a transaction structured so that:-

(i) The Ground was not transferred to WRFCL and/or Loftus Road plc; and/or

(ii) The Claimants and Lofus Road plc would have shared in any subsequent sale of the Ground.

(3) In relation to the Hypothetical circumstances the Claimants will say either that on the basis of probabilities they would have entered into, alternatively that they had a substantial chance of entering into, a transaction with Mr Wright and Loftus Road plc structured so that:-

(a) The Ground was not transferred to WRFCL and/or Loftus Road plc; and/or

(b) The Claimants and Loftus Road plc would have shared in the proceeds of any sale of the Ground.

and that subsequently the Claimants assisted by professional advisors would have obtained outline planning permission for the Ground in all material respects the same as that obtained by Loftus Road plc (with the assistance of the Defendant) and that thereafter the Claimants would have sold the Ground for approximately £11.9 million in about June 2000 (that being the value realised by Loftus Road plc with the assistance of the Defendant.)

(4) By way of voluntary further information and insofar as it is necessary for the calculation of their loss and damage the Claimants will say that, in the Hypothetical circumstances, the Ground (together with the Additional land and houses at 31 Repton Avenue and 77 Eton Avenue) together with the Claimants' other assets and liabilities would have been retained by them save that the rights to the Claimants' 1st XV team and the goodwill would have been sold to Loftus Road plc. The Trustees would have subscribed (as in the events which occurred) for the 1 preference share in Loftus Road plc which was a "golden share" save that the rights attaching to that "golden share" would have ensured only that the 1st XV team continued to play first class rugby (ie. they would not have made reference to rights relating to the transfer of all or substantially all of the Ground). Further Mr Wright would have been prepared to pay the Claimants up to £500,000 in cash (alternatively have granted a put option at £0.50 over 1,000,000 shares) for the transfer of the 1st XV team and the goodwill together with 2,000,000 shares in Loftus Road plc.

(5) Further or alternatively the Claimants have suffered loss and damage based on the difference between the true value of the Ground (together with the additional Land) as at 6 March 1996 and the value thereof as advised to the Claimants by the Defendant in the Third Valuation."

The Evidence.

163. Without exception, Mr Montlake, Mr Evans, Mr Simmonds and Mr Rigby were agreed that had Wasps received a current valuation of the ground in any sum (including Mr Pryor's lowest valuation of £1.164m) which had indicated that the ground had development potential Wasps would, if they could, have wanted to retain the land and to realise the potential for the Club and that the Club would in all probability have engaged LSH to that end. There was a strong emotional attachment to the ground amongst the members. There would also, on any transfer of the ground, have been a CGT exposure which the Club could ill afford if it could afford it at all. For that reason also it would have been important to consider whether or not the ground could be excluded from any fund raising proposal.
164. Mr Wright and Mr Levinson were also forthright in their evidence that Mr Wright was not at all interested in the Sudbury ground. His interest was in QPR. That was "the driver" and he was very keen to make it work. His interest in Wasps was only in a professional first team to share with QPR at Loftus Road. Both said that had only the first team been on offer they would have sought to acquire it. It was not in fact on offer because of Wasps' need to fund their liabilities and wish to keep the Club as an entity insofar as they could. I have no hesitation in accepting this evidence. Whilst I think Mr Levison's counsels and negotiating skills would have prevailed in the price and terms to be paid in such a situation I do not think they would have overcome Mr Wright's enthusiasm for "QPR with Wasps" even if (which I doubt) Mr Levison had sought to use them to that end.
165. It can of course be said, and has been said forcefully by Mr Berry, that Mr Wright went ahead with the agreement with Wasps in the knowledge of the DTZ valuation. Mr Levison acknowledged that the valuation did provide some comfort. But Mr Wright said, and I accept, that so far as he was concerned he had committed himself when he signed the Heads of Agreement, albeit they were not binding, and he had done that before the DTZ valuation was available. Had the ground not been on offer, of course, the DTZ valuation would not have come into existence.
166. There remain, however, and inevitably, many uncertainties about how such a hypothetical situation would have been resolved. Wasps would have been in possession of a non-negligent valuation and so on my findings (paragraph 159) a valuation in an amount of £3.25m in March 1996. But the Club would still have needed urgent funds to meet its present liabilities and of course to contract players and coaching staff and to develop or acquire a ground fit for the professional game (paragraphs 46 and 83). The success, cost and timing of any planning application for Sudbury would be uncertain even if the prospects were, as I think would have been revealed, worth pursuit and the recent example of Mr Rigby's success with the ground development application would have been an encouragement.
167. Mr Montlake's evidence was that Wasps first choice in this situation would have been to seek to sell the first team and goodwill only. That would have coincided with Mr Wright's objectives as I find them to have been. Mr Montlake also said that in order to meet the Club's liabilities the Club would have sought to negotiate a cash payment or put option with Mr Wright in the context of a 'sale' of the first team (similar to the one in fact negotiated) which would have raised about £500,000.
168. Mr Levison's evidence was that an acceptable solution would have been found in a situation in which Wasps was not willing to dispose of the ground. His view was that Mr Wright, with his support, would have been willing to pay £1 to 1.5m for the first XV and would have been "prepared to go to £1.5m if that was what it required to get the team." Mr Wright indeed said he would probably have paid what he did pay just to get the first team because he was really buying a brand name. No witness, including Mr Evans and Mr Levison, was of course able or prepared to say that the outcome would have been the one actually put forward by Wasps. Mr Wright and Mr Levison, for example, said another acceptable solution might have been some agreement for the Club and Loftus Road to share in the proceeds of any future development of the ground.
169. Mr Levison also considered (supported by Mr Wright) that in order to meet the liabilities of Wasps (£772,000 at 21 June 1996) which would not have been assumed by Loftus Road Plc if the ground had been kept out of the deal, Mr Wright would have been prepared either to pay £500,000 in cash or to grant a put option over shares to realise that amount. Thus the transaction, on Mr Levison's assessment, might have taken the form of cash of £500,000 (or realisation of a put option in that amount) and 2m shares in Loftus Road Plc valued at 50p per share with Wasps retaining the ground and the liabilities save for those related to the first team. As with the actual transaction so with the hypothetical transaction the value to be attached to any consideration shares then becomes a matter of some considerable complexity.
170. It was part of Mr Ilett's expert evidence for LSH that had Wasps retained the ground and so also the liabilities the Club would in fact not have been able to meet those liabilities let alone the further costs involved in the pursuit of a planning application. Mr Simmonds addressed this conclusion in his second witness statement. I think a fair summary of what is said there is that even with £500,000 from Mr Wright and the possibility of licensing the ground to Loftus Road Plc to use for training purposes for the first team other sources of finance or deferred payment of fees would have been required including the possibility of selling the ground to a developer on terms which retained a share in any uplift in value following a successful planning application.
QUANTUM: THE CLAIM
171. On 23 January 2004 Wasps served further information intended to set out the sum claimed by them.
172. The Primary Case. Wasps' primary case is that the Club would have entered into the alternative transaction and obtained the same benefit from the sale of the ground as Loftus Road Plc in fact obtained: £8.9 payable in the tranches set out in Schedule 1 to the further information and at least £255,000 for the clubhouse. It is said no CGT would have been payable because the proceeds would have been rolled over into a new ground and facilities for the Club. Against that sum Wasps accept that "credit is to be given for the benefit received by them from the transfer of the ground". That benefit is said to be £832,500 the value at which the ground was transferred to WRFCL on 10 July 1996. It is also said that £832,500 exceeds the actual benefit received by Wasps from the transfer of the ground (and other assets worth £172,000) which is said to have been:

£647,990 (before tax) from the sale of 1m shares in December 1996: (paragraph 118)

£106,316 from the sale of the balance of the shares in August 2003 (paragraph144)

£772,000 the sum of the liabilities assumed by WRFCL and Loftus Road Plc under the actual transaction (paragraph 109).

173. The total of these sums is £1,526,306 but the further information asserted that "the sum of £832,500 is approximately 54.5% of £1,526,306. The value of the shares attributable to the ground did not exceed 54.5% of the value of the transaction". The other major "asset" in the transaction was of course the first team and the name and goodwill attached to it.
174. The complexities of the information and quantum calculations multiply yet further after this and are addressed in the accounting evidence. But it is important to appreciate that much of that evidence was directed to an assessment of the value received in the actual and alternative transactions in order to establish the size of any credit to be given against Wasps primary claim.
175. The further information also put forward the alternative case of loss of a chance of achieving the rewards Loftus Road Plc in fact achieved and alternative dates for assessing the value of the benefit in fact or notionally received. There are three candidate dates alternative to Wasps' primary case that the relevant date for assessing the credit is 10 July 1996 and the relevant credit £832,500. The first candidate and Wasps' second choice put forward is 5 February 1998, the date of the expiry of the 18 month restriction on the sale of the balance of the shares by Wasps. The second candidate and LSH's second choice is 5 August 1996, the date when Wasps acquired the shares in Loftus Road Plc in exchange for 100% of WRFCL. The third candidate, and the one favoured by LSH, is 24 October 1996, the date when the Loftus Road Plc shares were successfully floated on the AIM market. Each date gives rise to its own complexities and difficulties which increase when the hypothetical transaction is also assessed and compared at each date. A glance at paragraphs 10 to 13 of the further information and the schedules attached to them as well as the Accountants' reports will serve to illustrate the problem. The final (alternative) way in which the claim is put is that if the claim is to be limited to the difference between the true value of the ground at 6 March 1996 and the value in the March 1996 Ground Valuation the claim is for £3,420,000, said to be the true value of the ground excluding 77 Eton Avenue, less £832,500, the value given by LSH, namely £2,587,500. It is also LSH's pleaded case that if the court rejects their primary case that no loss was suffered because there was no CGT loss the loss cannot exceed the difference between the true value of the ground as at March 1996 and £832,500. On my findings that gives a figure of £2,417,500: paragraph 159.
THE ACCOUNTANCY EXPERTS
176. It is some measure of the nature of this evidence that as the experts noted in their first joint statement they had each been instructed to answer "fundamentally different questions to the other". That is not a criticism of either Mr Hall or Mr Ilett, but rather an acknowledgment of the developing nature of the matters referred to them.
177. In his first report, (written before Wasps disposed of the balance of their shares) Mr Hall was asked to address various matters relating to the valuation of the consideration shares in Loftus Road Plc.
178. Mr Hall noted the net proceeds of £647,990 from the sale in December 1996 of 1 million shares arranged by Mr Wright. He expressed the opinion that it was unlikely that the balance of the Wasps holding could have been disposed of after 5 February 1998 save to a single identified purchaser and that the performance of Loftus Road Plc (it consistently made losses and never paid a dividend) meant it was "not clear that such a purchaser could have been identified". His valuation of those shares at 7 August 2003 was "in the range of £92,500 to £113,000 or 2.37p to 2.91p per share based on his assessment of the net asset value (NAV) of the Company discounted for lack of marketability and lack of control. Wasps later accepted the offer for the shares then before them (it was made on 27 May 2003) which realised £106,315 (paragraph144). The offer valued the shares at 2.73p each.
179. On the evidence before the court, and despite some criticisms expressed by Mr Ilett in his second report, I am quite satisfied that the price in fact obtained for the shares could not reasonably have been improved upon at any time after Loftus Road Plc went into administration. Buyers interested in QPR were not exactly thick on the ground. It is agreed the transaction was between a willing buyer and seller both being fully informed.
180. In his second report Mr Hall addressed the same question on the basis of the alternative or hypothetical transaction. The calculations assume that Loftus Road Plc would still have been floated on the AIM but with a new NAV reduced by the DTZ valuation and other assets of Wasps but increased by liabilities of £772,000 which would not have been assumed. They also assume (as Mr Levison said) that the Company would have needed to raise the same net amount (£11,956,000) in a flotation as it in fact raised and so would have had to issue more shares at a lower price to achieve that. The further assumptions are that otherwise the agreements and events would have followed the same course they in fact followed. On that basis Mr Hall valued the 2m shares part of the consideration assumed in the alternative transaction at about £50,000 at 7 August 2003.
181. In summary the price actually obtained for the shares in 2003 was reasonable at the time: £106,315. Had the alternative transaction been carried out some £50,000 would have been received. To that must be added £647,990 for the 1m shares in the actual transaction and £500,000 in the alternative transaction. Mr Ilett's opinion was that more might have been received in the alternative transaction but as the higher the figure the less the difference and LSH was concerned to maximise the difference I think Mr Hall's figure is to be preferred.
182. Mr Ilett's first report concluded (so far as material) that:

i) At the time of the transaction with Mr Wright, Wasps was in a poor financial position and in need of a source of finance to secure its short-term future as a rugby club. That is not in issue albeit the size of the need is a matter of some dispute: paragraph 46.

ii) The value of the 4,899,999 consideration shares in Loftus Road Plc was £3.6m at the date of the AIM listing (24 October 1996), a value higher than his calculation on a NAV basis.

iii) The value of the Golden Share on the basis, as I find, that it only provided for a qualified veto, would equate to the value of providing alternative ground facilities less a timing discount. Mr Ilett estimated the value to be at least £100,000, derived from the figure of £12,000 pa in the Licence Agreement (paragraph 103). In his second report he revised his figures to include also the annual payment of £20,000 (paragraph 104) increasing the value to at least £250,000.

Wasps Liabilities.

183. Relying in large part upon Mr Simmonds' evidence Mr Hall considered that Wasps' current liabilities would have been of the order of £600,000 in early August 1996 had the hypothetical transaction taken place with current assets (including the assumed receipt of £500,000) falling only some £38,000 short of that amount. Wasps had, however, a deficit on income and expenditure account in the year to 15 May 1996 of over £130,000 and, on Mr Simmonds' adjusted figures, a projected hypothetical deficit for the year to 15 May 1997 of over £40,000 together with a CGT liability of some £46,000. Whilst Mr Hall concluded on this basis that Wasps would have been able to fund the loss and tax liability, the figures do, I think, demonstrate some of the real uncertainties and risks which Wasps would have faced.

The Consideration Shares.

184. Mr Ilett's valuation of the consideration shares assumed Wasps was under no restriction from selling them. He said (as recorded in the joint statement and his second report) the sole purpose of the NGJ Irrevocable Instructions Letter (paragraphs 112-113) was to ensure that the Trustees would have sufficient assets available to meet any potential claims under the Share Exchange Agreement and therefore Loftus Road Plc would readily have consented to a sale provided the funds received were similarly secured for that purpose. I reject that. I am sure Mr Hall is right that Mr Wright would have been concerned to avoid (as he would have been entitled to do) the negative impact such a disposal would have on the share price. Mr Levison said as much in evidence. Indeed there is evidence that the restriction was suggested by Peel Hunt for this reason and that in late 1996 and early 1997 Mr Wright would not agree to any sale because of the effect on the share price. Mr Ilett also considered the value of the shares could be enhanced by making available to a purchaser one of the two directorships which were part of the rights attached to the Golden Share. I have, however, concluded that was not the case: paragraph 105.
185. In his second report Mr Ilett also suggested that Wasps could have "created" a liability equivalent to the value of the shares for example by purchasing a bond, and so used the right to meet a liability under the NGJ Irrevocable Instructions Letter to escape from the 18 month restriction. I also reject this. The Letter was plainly intended and in my judgment is to be construed as referring to liabilities of the Club arising in the ordinary course of the Club's continuing activities and not to artificial constructs such as Mr Ilett suggested. If it were otherwise the restriction would serve no purpose at all.
186. The experts agreed in the event that I reached the conclusion which I have expressed that the balance of the shares should be valued only after the expiry of the 18-month restriction on their sale. When the restriction expired the share price was 26p and Wasps owned some 9.8% of the total issued share capital of Loftus Road Plc. There was very little trading in the shares. I agree with Mr Hall that a disposal by Wasps of the entire shareholding at this time would indeed probably have had a negative effect on the share price, not only because of the size of the holding but because of the lack of confidence it would demonstrate on the part of a major participant in the original project at a time when the share price was already very depressed. Mr Hall's estimate was that a sale in February 1998, when the restriction ended, would have realised some £900,000 assuming a buyer could be found at 23.4p per share. In the alternative or hypothetical transaction he estimated that the notional 2m shares at the same date would have realised some £300,000 on a sale at 15p per share.
187. In summary in the actual transaction the 1m shares realised £647,990 and the balance of shares if valued at the end of the 18 month ban would have been valued at about a further £900,000 (Mr Ilett's figure is about £1m). In the alternative transaction Mr Hall's figures were £500,000 and £300,000; Mr Ilett's £568,000 and £340,000. I accept Mr Hall's figures.

The Golden Share.

188. In the alternative transaction the Golden Share would by definition have carried no rights relating to the transfer of Sudbury. For practical purposes it can be taken to have no value.
189. In the actual transaction Mr Hall considered only the £12,000 (and not the £20,000) figure appropriate and arrived at a value in October 1996 of some £95,000 and in February 1998 of some £68,000.
190. Mr Ilett's point was not that the £20,000 figure was an amount attributable as such to the Golden Share but that as it was an annual payment under the Licence Agreement towards Wasps annual costs at Sudbury which would no longer apply on the sale of the ground. Wasps would, he considered, have been able to use it as a further negotiating tactic if and when Loftus Road Plc sought to sell the ground and could have refused consent to a sale unless it was to be maintained at an alternative ground. Whilst I think there is some force in Mr Ilett's point it also depends largely on a use of the golden share in a manner which I have concluded could not be sustained. Moreover insofar as it does have force, as Mr Railton submitted, supported by the evidence, in the alternative transaction Wasps could well have licensed the use of the ground to Loftus Road Plc for a payment of the order of £20,000 a year which would cancel out any increased value which might be attributed to the golden share on this basis.

A Better or Worse Deal.

191. In view of my findings that a proper valuation would have been in an amount of £3.25m and that the valuation of the balance of the consideration shares has to be taken on the basis that they could not be sold for 18 months there is no prospect on the expert evidence of the value of the actual transaction exceeding the value of the alternative transaction or any reasonable alternative to it.

The Price of the ground.

192. There remains one further difficult question which is how much did "Mr Wright" pay and Wasps receive for the ground. The question itself is artificial on my findings because Mr Wright did not look at the transaction in those terms. The expert accountancy evidence was also directed at reaching an analytical conclusion to the question but the nebulous nature and uncertain value of Wasps' goodwill and the difficulties of valuing the consideration shares make the task very speculative. The bare facts, as I find them, however seem to me to go some way to provide a sufficient answer. Wasps entered into the transaction on the basis the ground was worth £832,500. The ground was transferred at that value to WRFCL. Wasps received 4,899,000 Loftus Road Plc shares and the Golden Share in return for all the Club's assets. The assets were the ground, the first team, other assets worth £172,000, and liabilities of £772,000. As I find, Mr Wright would have been prepared to pay £1.5m for the first team alone in cash and shares, but would not have taken on the liabilities of £772,000 nor acquired the assets worth £172,000. That is, I think, the best indication of the value of the team.
193. In the event Wasps received under the actual transaction for all the Club's assets only £647,990, £106,315, £772,000 and the performance of the obligation to provide an alternative ground. That is not much more than Mr Wright was, on my findings, prepared to pay for the first team alone. Even if a 'valuation' approach is adopted on my findings, and assuming valuations of the shares at 5 February 1998, Wasps "received" before any CGT:

647,990 (paragraph 118)

900,000 (paragraph 187)

600,000 (paragraphs 109 and 192)

68,000 (paragraphs 189 to190).

2,215,990

194. In the hypothetical transaction Wasps would have received option shares or cash to the value of £500,000 and further shares to a value at 5 February 1998 of about £300,000. Various liabilities would, the experts agree, also have been assumed by Mr Wright in a sum of £43,000. The total, again gross of any CGT liability, is £843,000.
195. These figures suggest a gross value of the benefit received for the ground of £1,372,990 (2,215,990 – 843,000). The experts also agree that in the hypothetical transaction costs of £140,000 incurred in the actual transaction would not have been incurred so reducing the figure by that amount to £1,232,990.The figures, subject to the adjustments I consider appropriate are set out in Column 7 of a document most easily identified as volume G/265. There remains therefore a question whether Wasps in fact received more than £832,500 for the ground in the actual transaction with Mr Wright.
196. I think it better as the matter has not been specifically addressed and if it cannot be agreed to leave it to further submissions from the parties in the light of this judgment on the other matters in issue whether or not Wasps must give any and if so what credit for this notional figure.
QUANTUM: THE LAW
197. Mr Berry referred me to County Personnel v Alan R. Pulver & Co [1987] 1 WLR 916. That was a case in which solicitors were held to have been negligent in relation to an unusual rent review clause agreed by their client which operated to produce an increase in rent greater than the market rental. The client had to pay to surrender the lease and lost a chance to sell the business run from the demised premises. Bingham LJ, at pages 925-6, stated a number of principles to be applied to an assessment of damages which, whilst well-known, I find helpful and will express as they apply in the present context.
198. First, the overriding rule is that the measure of damages is that sum of money which will put Wasps in the same position as they would have been in if the Club had not sustained the wrong for which compensation is to be assessed.
199. Second where property is acquired following negligent advice the "diminution in value rule" is almost always appropriate. But, third, that is not an invariable approach and should not be applied where it may appear inappropriate, such as where the cost of making good an error or the cost of repair more truly reflects the loss suffered.
200. Fourth, the general rule is that damages are assessed at the date of breach but this rule also should not be mechanistically applied in circumstances where assessment at another date may more accurately reflect the overriding compensatory rule. The same point was made by Lord Browne-Wilkinson in Smith New Court v Scrimgeour Vickers [1997] AC 254 at 265-6.
201. In the event, whilst the Court of Appeal remitted the case for assessment, it held that the diminution in value rule (which would have been likely to increase the claim) should give way and the first limb of the rule in Hadley v Baxendale would better be met by recovery of the actual cost incurred by the client in negotiating the surrender of the lease.
202. In this case, Wasps would have continued to own the ground or only have disposed of it in the knowledge that it was worth £3.25m and not £832,500. I see no reason of principle why the diminution in value rule on an acquisition at an inflated cost should not have its counterpart in a sale at an undervalue expressed as the loss of increase in value rule albeit the circumstances which would result in the one or the other being inappropriate would differ. The circumstance, as I have held, that Wasps were unable to dispose of the balance of the consideration shares for 18 months is an example of a circumstance where assessment at another date in my judgment more accurately reflects the overriding rule. No one could on my findings have acquired the shares before the expiry of 18 months, and the experts are agreed that on that basis the shares are properly to be valued only at the expiry of the period. So, also, I do not think a valuation at the date of the Business and Asset Sale and Purchase Agreement (paragraph 96) is appropriate. That Agreement was only one step in the process which concluded with the acquisition and AIM listing of shares in Loftus Road Plc. Moreover at the time of the Agreement Wasps in effect retained the ground through the holding of all the shares in WRFCL.
203. The other legal principle which was addressed at some length was "loss of a chance". If Wasps would not have disposed of the ground as they did but would have sought by one route or another to realise the value of the ground for the Club, the Club lost that opportunity and also the opportunity to follow the course which in the event was followed by Loftus Road Plc and resulted in the planning consent and sale of the ground for net proceeds of £8.9m and the sale of the clubhouse for £225,000.
204. In order to succeed in such a claim which depends on an assessment of the outcome of events which by definition did not occur, a claimant must show a real or substantial, rather than a speculative, chance that the benefit would have accrued to him: Allied Maples Group v Simmons & Simmons [1995] 1 WLR 1602. The principle is, I think, easier to state than to apply. The "chance" must be evaluated at a point between "real or substantial" and "near certainty". Plainly it can be less than "probable". Damage is then assessed by calculation of the value of a full claim on the hypothetical basis reduced by the percentage chance of that result being achieved.
QUANTUM: CONCLUSIONS
205. I have not found it an easy task to address the quantum issues. On my findings, I think the following are the key considerations:

i) Wasps should have been provided with a valuation which drew attention to the planning prospects and a consequent valuation of the property assets at March 1996 of £3.25m (paragraphs 154 and 159). I shall refer to this as "the proper valuation".

ii) Wasps would then have considered whether or not the Club could keep the ground out of any deal with Mr Wright (paragraph 163). I am satisfied at least that the ground would not have been included as it was in the transaction which did take place. Mr Wright would have been willing to 'buy' the first team alone (paragraph 168). The DTZ valuation would not then have existed. But it is reasonable to assume Mr Wright would have learnt of the proper valuation. Mr Wright would probably have been prepared to pay £1.5m for the first team alone (paragraph 168) and the transaction on offer would have included a cash or put option worth £500,000 and 2m Loftus Road Plc shares at 50p per share. The shares would, or course, have less (apparent) asset backing and so value than in the actual flotation because of the omission of the ground at the DTZ valuation of £5.7m.

iii) But I think there are many real uncertainties in whether or not such an alternative transaction would have been pursued let alone concluded. Despite the skills available to the Club through its officers, the prospect of running the amateur club at Sudbury whilst also pursuing a planning application for the ground which had no guarantee of success or success for any particular development and had no defined time scale, would be both daunting and risky. The financial position of the Club would still have been stretched. Even if successful a new ground would have to be found. It would also mean that the separation of the professional and amateur Wasps would be likely to be more profound than under a transaction of the nature which was agreed. The most that might have been agreed was that the first team would have training rights at Sudbury. Some members might have been tempted to pursue the original AIM listing plan with the improved asset-backing and ignore Mr Wright. Wiser heads might have sought to realise the increased value without taking the risk of not obtaining consent or not obtaining it without considerable cost and the passage of time.

iv) It is notable that the letter of claim asserted that if the ground had been valued at the DTZ figure Wasps would have sought to go it alone: paragraph 161. It is also notable that the alternative transaction is itself put forward on the alternative bases of keeping the ground out of any transaction with Mr Wright or of ensuring that Wasps would share with Loftus Road Plc in the proceeds of any subsequent sale of the ground: paragraph 162. That is supported by the evidence of Mr Levison: paragraph 168. It is also consistent with the basic objectives of Wasps and Mr Wright, the one to protect the future of the amateur Club, the other to acquire the first team.

v) I think the alternative course of realising the proper value of the ground by a disposal on terms that achieved that outcome would have been rightly seen to have been a much wiser course than taking on the risks for no certain return and at the same time "selling" the first team and so the major component of the goodwill of the Club.

206. In my judgment the level of speculation and risk involved in the alternative transaction is such that I do not think Wasps has established as a matter of probability that the Club would have gone or sought to go that route particularly so when an alternative and much more certain way of realising the current true value of the Club's asset would as I find have been available. I can see no sensible reason for supposing that Wasps would have done anything other than seek to realise the proper worth of their assets in any agreement with Mr Wright, or indeed a developer, or by any other means had they been aware what that value was. Indeed the Trustees would arguably have been obliged to do so. In my judgment it is also probable that by one route or another that would have been achieved.
207. If a transaction had taken the form of securing to Wasps a share in the development value of the land, I would have expected that share to equate to the properly assessed value of the asset at the date of the transaction. There is no evidence before the court which would justify a higher figure and I see no reason why Wasps should have settled for less.
208. In view of my finding that Wasps has not established that the Club itself would have pursued the planning opportunities available for the ground I do not think the question of "loss of chance" of achieving the same outcome as was in fact achieved by Loftus Road Plc arises. If it had, I accept that, perhaps unusually, in this case the court has the benefit of evidence from both parties to the transaction which was carried out and knows that a valuable planning consent was achieved and the ground sold for a substantial sum with its benefit. It also knows that it is probable that Wasps would have used LSH to pursue the opportunity. Nonetheless, I am not convinced that Wasps would have been able or willing to pursue the application with the skill and persistence which Loftus Road Plc brought to it nor that the Club would have been as well placed to advance the "fallback position" as one carrying any real degree of force. If I had to assess the percentage chance of Wasps achieving the same outcome I would put it at about a third. In fact in the circumstances of this case as I find them it seems to me to serve as no more than a helpful check on whether or not it is in principle a fair assessment that Wasps' loss should be taken to be the difference between the amount of the valuation it should have received and the one it did receive. In the event I think it does provide some support for that assessment.
209. Essentially I think that Wasps, had they been given a proper valuation, would have realised that valuation for the benefit of the Club but no more. I also think they would have done so or are fairly to be treated as doing so effectively by no later than the end of 1996 and so interest on any damages should run from 1 January 1997. On the basis that a way could have been found to avoid any CGT exposure or that any damages awarded will themselves be subject to tax that sum should also be payable gross of any tax. That is a factor on which, I think, if it cannot be agreed, it would also be sensible to allow for further submissions to be made.
210. It is a consequence of my conclusion that much of the expert accountancy evidence and the complexities to which it gives rise is of less materiality to the outcome. However, I have nonetheless sought to address in this judgment the main points of principle as invited by Mr Railton in his closing submissions in which he also sensibly suggested that to the extent that the resulting figures were material the parties should then be able to agree the outcome. Whilst I am not so sanguine about the agreement I am more than content to leave the task to the efforts of the parties should it become necessary to pursue the matter.
211. It follows that in my judgment, subject to the matters I have mentioned in paragraphs 196 and 209, the fair assessment of the loss suffered by Wasps is the difference between the valuation of £832,500 they received from LSH and the proper valuation which on my findings they should have received of £3.250m, namely £2,417,500. That conclusion is also one which reflects an alternative case pleaded by both Wasps and LSH: paragraph 175.
SCOPE OF DUTY: THE LAW
212. The leading authorities are Saamco; Platform Home Loans Ltd v Oyston Shipways Ltd [2000] 2 AC 208 and Aneco Reinsurance v Johnson & Higgins [2001] UKHL 51. There are no easy answers to be found in these authorities. The principle is that duty and damage are "inseparable": there is no liability unless the duty of care is a duty to avoid causing the claimant damage of the particular kind which he has in fact sustained. The duty owed must be a duty in respect of the kind of loss suffered; there is no liability for losses which fall outside the scope of the duty. In Saamco, at pages 211-212, Lord Hoffmann said:

"How is the scope of duty determined? …. In the case of an implied contractual duty, the nature and extent of the liability is defined by the term which the law implies. As in the case of any implied term, the process is one of construction of the agreement as a whole in its commercial setting. The contractual duty to provide a valuation and the known purpose of that valuation compel the conclusion that the contract includes a duty of care. The scope of the duty, in the sense of the consequences for which the valuer is responsible, is that which the law regards as best giving effect to the express obligations assumed by the valuer; neither cutting them down so that the lender obtains less than he was reasonably entitled to expect, nor extending them so as to impose on the valuer a liability greater than he could reasonably have thought he was undertaking."

213. The context in Saamco was a valuation for a lender concerned to know the value of the property as security for a loan should he need to resort to it if the lender defaulted. The House of Lords decided that the liability of the valuer was limited to the difference between the value reported and the true (lower) value which should have been reported. It was therefore not in point that had the true value been reported the loan would not have been made at all and the lender could not recover losses arising from the fall in the property market during the currency of the loan.
214. It follows that for a court to determine the scope of the duty owed by LSH in this case it is necessary to examine the agreement between LSH and Wasps "as a whole in its commercial setting" and to consider the express obligations assumed by LSH and the reasonable expectations of Wasps and LSH as to what the one was entitled to expect and the other thought was being undertaken.
215. In Platform Home Loans, Lord Hobhouse, at page 210, described the effect of the decision in Saamco to be that "in the ordinary case there would be a cap on the amount of damages which the lender could recover from the valuer being the amount of the overvaluation" albeit as Lord Hobhouse said Lord Hoffmann himself had disavowed such an approach.
216. In Aneco, at page 181, Lord Lloyd, referred to "the Saamco principle" in these terms:

"… in the case of valuers, and their like, that is to say, those who undertake to provide specific information, the Saamco principle gave rise to a sub-rule, that valuers are not generally liable … for all the foreseeable consequences of their negligence, but only for the consequences of the valuation being wrong. It follows that the damages will usually, though not always, be limited to the difference between that valuation and the correct value …."

Thus the focus is upon "the consequences of the valuation being wrong" albeit the contrast between that and "what would have happened if the valuation had been right" (Lord Hoffmann in Saamco at page 233F) is also one which I find easier to state than apply.

THE FACTS
217. In my judgment, the material considerations are set out in the following paragraphs.
218. The instructions from Wasps to LSH are not themselves recorded or confirmed in any document apart from the purported record in the valuation itself. That is contrary to good practice reflected in the provision of the Red Book effective from 1 January 1996 which provided by PS 2.2.2 that:

"the Valuer must always agree with/confirm his instructions to the Client … in writing before issuing the Report … and in so doing define, as a minimum, the following:

(a) the purpose of the valuation …;

….

(d) so far as practicable assumptions to be made relative to the basis of valuation;

….

(l) the nature of information provided (e.g. tenure …) by the Client … and the extent to which the Valuer is to rely upon that information;

…."

219. Although Mr Pryor, and to an extent Mr Atkinson, sought to say that these provisions were not yet fully practised by March 1996 and were of less significance or relevance where all that was required was an up-date of an earlier valuation, neither point impresses me. The provisions were acknowledged to be good practice and largely reflect commonsense. On any view the March 1994 LSH Valuation and the March 1996 Ground Valuation were required for different purposes. True it is that Mr Rigby's position may have led to some informality in the sense that he could well have been seen as having a foot in both camps but that is at least as much an argument for a need for formality as against it. The purpose of the provisions is to avoid misunderstanding and uncertainty.
220. The context in which the valuation was sought on 31 January 1996 was the possible transfer of the ground as part of a process intended to enable Wasps to raise funds for the professional era. On my findings that was known to and understood by both Mr Rigby and Mr Atkinson: paragraphs 53 to 56 and 58 to 59. It can also be inferred that it was known to Mr Hale from what he was told by at least one of Mr Rigby and Mr Atkinson.
221. There is nothing in the Valuation itself nor any other evidence to suggest that Mr Atkinson knew or was concerned about any particular transaction for which Wasps might rely on the valuation. Indeed he acknowledged that it could at least be relied upon for CGT purposes in the transaction with Mr Wright.
222. Wasps should have appreciated from the terms of the first sentence of the Valuation (paragraph 60) that a limitation was expressed on the purpose of the ground valuation namely "the purposes of capital gains tax". The heading and terms of Mr Rigby's letter of 7 March (paragraph 67) are not I think compelling bearing in mind that the residential property valuations were also enclosed with it and were expressed in very different terms. At no time did Wasps correct or comment on the first sentence of the Valuation.
223. There are real questions about the meaning to be given to a "valuation for the purposes of capital gains tax" in the context to which I have referred. Such a valuation assumes a disposal in contemplation but yet to be made and, it is agreed, is no different from any other market valuation and so was required to include a current open market valuation which itself would require an assessment of any development prospects. That was an obligation LSH agreed to perform, even if it was thought to involve no more than an update of the March 1994 LSH Valuation. The section of the valuation entitled "As at March 1996" in the third paragraph read as it is written indeed expresses a market valuation at a figure of £832,500. It adds a "market value" of the 4.4 acres of land to the March 1994 LSH Valuation, albeit that (1994) valuation was on a DRC basis.
224. The terms of Mr Hale's valuations of the residential properties are, I think, compelling evidence of the wider context in which all the Valuations were sought and required: paragraph 66.
225. Although less compelling, there can be no doubt that with the full support and agreement of Mr Rigby the Valuations were in fact used not only for the original AIM proposal (paragraph 82) but also in the negotiations with Mr Wright (paragraph 87) and in the Business and Asset Sale and Purchase Agreement between Wasps and Newco (paragraph 96). That is also some evidence as to how the purpose of the Valuations was seen at the time they were requested and prepared. The same can be said for the exchanges within LSH at the time the DTZ Valuation came to light (paragraph 115)
226. In my judgment the considerations to which I have referred justify the conclusion that it was at least a purpose of the March 1996 Ground Valuation that it would provide Wasps with information as to the current value of the ground to enable the Club to decide whether and if so at what value to dispose of the ground and that LSH knew or at least should have known that Wasps would rely upon it for that purpose.
227. The consequence of the Valuation being wrong because it was too low by a substantial amount was on my findings that Wasps disposed of the ground for less than it was worth when the Club would not otherwise have done so and that the Club did not negotiate a transaction which it would have been able to do to secure for itself the true value of the ground. That loss was, in my judgment, one which fairly falls within the scope of the duty undertaken by LSH to Wasps to avoid.
THE RIGBY REPRESENTATIONS
228. I have found (paragraph 73) that Mr Rigby did express the opinion shortly after the March 1996 ground valuation was available and in the context of discussing it that residential planning consent would be extraordinarily difficult to obtain and was not a realistic possibility.
229. In view of my findings on the scope of the duty owed by LSH the materiality of the conversation is, however, limited. I think the conversation supports those findings and that the context in which the valuation was sought was in fact of a much more general nature than the opening words of the valuation state. I should perhaps add that the submissions debate whether or not it is correct to characterise Mr Rigby's statement as a negligent one even if I was to conclude (as I have) that the chances of a planning consent were at least 50%. Mr Berry submitted that it did not follow that Mr Rigby as a retail surveyor was negligent simply because he was wrong. Mr Berry's point is undoubtedly right in the abstract but the statement was made in the context to which I have referred and in particular on the basis that the planning position would have been investigated and considered by Mr Atkinson in preparing the valuation. I do think LSH, by Mr Rigby, was negligent in saying consent would be extraordinarily difficult to obtain without (albeit unknown to Mr Rigby) in fact carrying out such an investigation. On my findings as to the role of Mr Rigby the relevant duty of care is the duty upon LSH in undertaking the Valuation itself. Mr Rigby was speaking in explanation of that Valuation and indeed of what was implicit in it.
CONTRIBUTORY NEGLIGENCE
230. The three allegations of contributory negligence made against Wasps are pleaded in paragraph 36 of the Amended Defence.
231. The first allegation is that Wasps failed to consider how, in the transaction with Mr Wright, the Club could have kept the ground or agreed to retain a share in the proceeds of any subsequent sale of the ground. I reject this allegation. The question of retaining the ground was in fact raised and rejected in the light of the valuation by LSH. There was no reason for Wasps to believe that the ground had any greater value or potential for development. Nor was the Club in a strong negotiating position.
232. The second allegation is that Wasps failed to obtain an OMV of the ground for the purposes of the transaction with Mr Wright. I reject this allegation also. On my findings not only should Wasps have received an OMV, but the Club is not to be criticised for treating the March 1996 Ground Valuation as a valuation on which it could rely in the transaction with Mr Wright.
233. The third allegation is that Wasps failed to correct the erroneous information about the restrictive covenant. I also reject this allegation. It was for LSH to make clear (if it was the case) that the valuation was significantly affected by the terms of a covenant. LSH did not do so. In fact the covenant made no difference to the valuations as both the March 1996 Ground Valuation and the March 1994 LSH Valuation were on a DRC basis. I see no reason to criticise Wasps when it was the duty of LSH to alert the Club to the matter in question. Nor is there any reliable evidence that the reference to the covenant caused any loss to Wasps.
234. In my judgment, the allegations of contributory negligence made by LSH against Wasps all fail.
MITIGATION
235. Paragraph 37 of the Amended Defence makes a single allegation of failure to mitigate. It is alleged that Wasps should have used the Golden Share to secure a share in the proceeds of the sale of the ground by Loftus Road Plc. I reject this. To a considerable extent the allegation itself depended on the construction of Article 5(E) of the Company's Articles of Association which I have rejected: paragraph 108. In any event I do not consider the decision of Wasps not to follow this course to have been unreasonable. It called for an exercise of judgment in a difficult situation: paragraph 136.
THE PART 20 PROCEEDINGS
236. The main issues in the Part 20 Proceedings are set out in paragraph 11. They are closely related to the allegations of contributory negligence and failure to mitigate made against Wasps.
237. The first allegation is that NGJ should have advised Wasps to obtain an OMV of the ground and to consider excluding it from the transaction with Mr Wright or securing any interest in any enhanced value of the ground on its disposal. I reject this. On my findings Wasps had or were entitled to believe that they had such a valuation. Moreover NGJ were not retained or instructed to advise on commercial matters nor on the valuation of the ground: paragraph 81. Wasps had their own experts on such matters as indeed they had on legal matters also. There is no expert evidence to suggest that it is either good or usual conveyancing practice to seek to secure a share in any enhanced value of land sold and I see no reason to doubt NGJ's evidence to the contrary. Nor did NGJ have any reason to believe that there was any prospect of a future planning gain or that the ground was worth more than £832,500, the value at which it was transferred.
238. The second allegation is that NGJ should have corrected the erroneous reference to the restrictive covenant. I reject this also. NGJ were not retained or instructed to advise on the valuation and had no reason to believe that the terms of any covenant had any significant effect on the valuation reported. In any event Mr Montlake knew the covenant was of no significance and both he and Mr Rigby did not think any covenant was material to the valuation; nor was it as Mr Atkinson in fact did the valuation on a DRC basis.
239. The third allegation is that NGJ should have advised Wasps that the Golden Share entitled the Club to exercise a right of veto over the sale of the ground by Loftus Road Plc. But in my judgment it did not: paragraph 108. In any event the advice NGJ did give is not open to any relevant criticism: paragraph 135. Nor do I think stronger advice would have produced a change of events in view of Mr Montlake's concerns and Mr Levison's understanding: paragraph 136.
240. In my judgment the Part 20 claim by LSH against NGJ fails and must be dismissed.
OVERALL CONCLUSION.
241. Subject to the matters mentioned there Wasps are entitled to damages in the sum of £2,417,500: paragraph 211. Interest is to be assessed on the basis stated in paragraph 209. No deduction is to be made for contributory negligence or mitigation failure. The Part 20 claim fails. I will hear the parties after this judgment has been handed down on any outstanding and ancillary matters which arise out of it.