McCarroll v Statham Gill Davies (a firm)

This is an appeal, with the permission of the judge, against the decision of Gray J dated 28 November 2002 granting Statham Gill Davies (a firm) (“the respondents”) summary judgment against Mr Anthony McCarroll (“the appellant”) on their limitation defence.

The appellant was formerly drummer with the band Oasis. I gratefully adopt the learned judge’s description of the nature of the claim:

“… 3. The claim is for damages for negligence on the part of Mr Statham of the defendant firm in his capacity as solicitor acting for the claimant [that is, the appellant]. He was also acting for the other members of the band. In that capacity Mr Statham negotiated the terms of a recording contract between the band and Sony which was signed on 22 October 1993 (“the Sony Agreement”). The essence of the claim is that, whether by his acts or his omissions or both, Mr Statham brought about a conflict of interest between the various members of the band because the Sony Agreement wrongly favoured Noel and Liam Gallagher over the other members of the band including the claimant. It is asserted that Mr Statham acted negligently in failing to ascertain from the members of the band whether or not the agreement properly reflected their position; failed to advise the claimant to seek independent legal advice in relation to the conflict of interest which had arisen and failed to point out that the effect of the Sony Agreement was that the name “Oasis” was owned by the Gallagher brothers and left the claimant vulnerable to instant dismissal without compensation. It is further contended that Mr Statham should have advised the claimant of the need for a partnership agreement to regulate the relationship between the members of the band.

4.

Although not relevant for the purposes of the present application, I should record the fact that Mr Statham repudiates the suggestion that he was negligent in the above or any other respects.

5.

The nature of the case advanced on behalf of the claimant as to the damage suffered is that, but for the negligence of Mr Statham, he would not have signed the Sony Agreement but would have obtained independent legal advice and secured written terms of partnership which would have protected him from the risk of being summarily expelled from the band without compensation. The terms which the claimant contends would have been agreed with Sony are pleaded in his Response to the Request for Further Information.”

Material allegations of negligence against the respondents are strongly and comprehensively included in the pleadings. If the action were to proceed, arguments would plainly arise upon causation as well as upon the issue, strongly contested, as to whether breaches of duty had occurred.

Oasis were formed in 1991 and Mr Noel Gallagher instructed Mr Statham to act on their behalf in the preparation of a recording contract. The group’s manager was Mr Russell assisted by Mr McKinlay. In July 1993, Mr Statham asked Mr McKinlay whether there were any key members of the group and he replied that the Gallaghers were the key members. Early negotiations for a recording contract were with Creation Records, an independent record company, but it was later agreed that the group should enter into a recording agreement with Sony, with Sony licensing the UK rights to Creation Records. On 20 October 1993, Mr Statham told Sony’s solicitor that “his clients” did not want the appellant to sign the agreement because he was not a full member of Oasis and the agreement was prepared with the appellant’s name omitted.

However, on 22 October all members of the group, including the appellant, were present at a meeting and agreed to the appellant also signing, whereupon his name was added to the agreement. The appellant claims that it was not brought home to him that the combined effect of the absence of a written partnership agreement and the leaving member and group name ownership provisions in clauses 22 and 23 of the agreement meant that he was vulnerable to the agreement being construed as a partnership-at-will so that he could be expelled without notice or compensation. It was provided that the name Oasis was jointly owned by Noel and Liam Gallagher. Its use by the appellant depended on his remaining with them as a member of the group.

The agreement was signed and the first album recorded by Oasis under it was released in August 1994 and was very successful. Sony called for a second album but, before recording began, the appellant was, on 28 April 1995, summarily expelled from the group.

The appellant first brought an action against the other four members of Oasis who contended that the group was a partnership-at-will. They relied on clauses 22 and 23 of the recording agreement The action was settled shortly before trial, the appellant receiving only a modest lump sum payment in respect of his future rights to royalties upon recordings made before his expulsion from the group. He issued a claim against the respondents on 24 April 2001, that is just within a period of six years from his expulsion but considerably more than six years from the signing of the Sony Agreement on 22 October 1993. The defence denied liability and also relied on the provisions of the Limitation Act.

Section 2 of the Limitation Act 1980 (“the 1980 Act”) provides that “an action founded on tort shall not be brought after the expiration of six years from the date on which the cause of action accrued”. Lord Nicholls stated in Nykredit Plc v Edward Erdman Ltd [1997] 1 WLR 1627 at 1630C:

“In cases in tort the cause of action arises, not when the culpable conduct occurs, but when the plaintiff first sustains damage. Thus the question which has to be addressed is what is meant by ‘damage’ in the context of claims for loss which is purely financial (or economic, as it is sometimes described).”

The first issue in the present appeal is when the appellant first sustained damage; he contends that it was when he was expelled from the group and the respondents contend that it was when the recording agreement with Sony was made.

Having considered the authorities, the judge’s conclusion, at paragraph 39, was that the appellant “did suffer relevant and measurable damage at the date when the Sony Agreement was executed. I am not persuaded that the appellant has a real prospect of establishing the contrary at any trial. It follows that by virtue of section 2 of the 1980 Act, the cause of action accrued more than six years before these proceedings were issued”.

Nykredit was an action by lenders following a negligent valuation of property on the strength of which they had advanced money. In considering whether damage had been suffered, a comparison was to be made between the incorrect value ascribed to the property by the valuers and the true value of the property at the date of valuation. Having considered the facts, Lord Nicholls stated, at p 1632C: “The basic comparison gives rise to issues of fact. The moment at which the comparison first revealed a loss will depend on the facts of each case. Such difficulties as there may be are evidential difficulties, not difficulties in principle”.

Lord Nicholls also distinguished between a decision as to when damage is first sustained and decisions involving its assessment. He stated at p 1633C:

“The amount of a plaintiff’s loss frequently becomes clearer after court proceedings have been started and while awaiting trial. This is an everyday experience. There is no reason to think that the approach I have spelled out will give rise to any insuperable difficulties in practice. In their practical conduct of litigation courts are well able to ensure that assessments of damages are made in a sensible way. It is not necessary, in order to achieve a sensible and fair result, to go so far as asserting that the plaintiff has no cause of action, and hence may not issue a writ, until the assessment can be made with the degree of precision that accompanies a realisation of the security. Further, within the bounds of sense and reasonableness the policy of the law should be to advance, rather than retard, the accrual of a cause of action.”

For the appellant, Mr Arnold QC submitted that for the cause of action to arise with the relevant transaction, there must be an immediate loss on entering into the transaction. Mere exposure to a contingency does not amount to actual damage. Where there is a true contingency, there will be no loss if the contingency does not materialise. In the present case, the appellant on entering into the Sony Agreement would suffer actual damage only if he was summarily expelled from the partnership-at-will. Whether damage was sustained depended on a true contingency, namely whether the appellant would be expelled from the group. While he remained a member, no damage was sustained.

As to the loss claimed by virtue of the provision in the Sony Agreement that the band’s name was owned by the Gallagher brothers, combined with the appellant’s vulnerability to instant expulsion, Mr Arnold submitted that the name Oasis had no value until the Sony Agreement was made. It was submitted that the appellant did not lose valuable goodwill in that it was only the making of the agreement which created the goodwill. A loss cannot arise from signing an agreement without which there would have been no loss. In any event, it was submitted, no loss was suffered until the appellant ceased to be a member of the group.

Reliance was placed on the decision of this Court in First National Commercial Bank Plc v Humberts [1995] 2 All ER 673, cited with approval in Nykredit. That was another lender’s claim in which it was held, upon an analysis of the facts, that no loss was suffered until after March 1984, that is a considerable time after the transaction by which the money was advanced. Saville LJ stated at page 678B:

“Up to and at that date their then outlay, together with either the cost of borrowing or the notional profit that could have been obtained elsewhere, was less than the value of the security put up for the deal. Accordingly, until after March 1984 the plaintiffs could not show a cause of action against the valuers for the assumed breach of duty had not caused them any actual loss or damage.”

Reliance was also placed on the decision of the High Court of Australia in Wardley Australia Ltd & anr v The State of Western Australia [1992] 175 CLR 514 acknowledged by Lord Nicholls in Nykredit (at p 1663H) to be a “possible exception” to the approach he had spelled out. Having stated that the English cases involving contingent loss “were decisions which turned on the plaintiffs sustaining measurable loss at an earlier time, quite apart from the contingent loss which threatened at a later date” Mason CJ, Dawson, Gauldron and McHugh JJ in their joint judgment also stated at p 532:

“If, contrary to the view which we have just expressed, the English decisions properly understood support the proposition that where, as a result of the defendant’s negligent misrepresentation, the plaintiff enters into a contract which exposes him or her to a contingent loss or liability, the plaintiff first suffers loss or damage on entry into the contract, we do not agree with them. In our opinion, in such a case, the plaintiff sustains no actual damage until the contingency is fulfilled and the loss becomes actual; until that happens the loss is prospective and may never be incurred.”

Wardley was concerned with a cause of action created by statute for the recovery of loss or damage and it was held that the indemnity given by the State generated only a contingent liability. Reference was also made by counsel to the decision of the New Zealand Court of Appeal in Gilbert v Shanahan [1998] 3 NZLR 528 where the Wardley approach was adopted.

I do not suggest that special rules apply to lenders’ cases but it may, on the facts of those cases, be difficult to decide when loss in respect of which the duty was owed is first suffered. The position is analysed in Nykredit by Lord Hoffmann at pp 1638H to 1639D. A case nearer the present is Knapp & anor v Ecclesiastical Insurance Group Plc & anor [1998] PNLR 172, not cited in Nykredit, where a defendant insurance broker sought to strike out a claim against him on the basis that it was statute barred. An insurance policy was avoided because the broker had failed to disclose material facts, of which he knew, to the insurer. Having referred to earlier cases, Hobhouse LJ stated at p 184E:

“From these authorities it can be seen that the cause of action can accrue and the plaintiff have suffered damage once he has acted upon the relevant advice ‘to his detriment’ and failed to get that to which he was entitled. He is less well off than he would have been if the defendant had not been negligent. Applying this to the present case, the plaintiffs paid their renewal premium without getting in return a binding contract of indemnity from the insurance company. They had acted to their detriment: they did not get that to which they were entitled. The fact that how serious the consequences of the negligence would be depended upon subsequent events and contingencies does not alter this; such considerations go to the quantification of the plaintiff’s loss not to whether or not they have suffered loss. The risk of loss existed from the outset and in the absence of better evidence would have to be evaluated and assessed as a risk and damages awarded accordingly.”

Hobhouse LJ added, at p 186E:

“The plaintiffs suffered loss as soon as they received an insurance contract which was not binding upon the insurers. The subsequent events, the question whether or not the insurers would thereafter avoid the policy and with what consequences, went only to the quantification of loss not to the identification of the first moment at which a plaintiff suffered loss and the tort became actionable. …” and at p 187A “Had it been necessary to do so the court could and should have put a monetary value upon that loss at that time [the receipt of a purported cover which was not binding]”.

In his judgment, Hobhouse LJ also commented, at p 177G, that “English law has therefore preserved the strict primary rules governing the accrual of causes of action but has sought to avoid or mitigate injustice by specific statutory provision”. “A different approach has been adopted in this country” from that in Australia (p 178C).

A similar result had been achieved in D W Moore & Co Ltd & ors v Ferrier & ors [1988] 1 WLR 267 where the plaintiffs would have obtained the benefit of an effective restraint of trade covenant if the defendant’s solicitor had done his job properly whereas they received a worthless covenant. Bingham LJ stated, at p 279H:

“It seems to me clear beyond argument from the moment of executing each agreement the plaintiffs suffered damage because instead of receiving a potentially valuable chose in action they received one that was valueless.”

Acknowledging the distinction from the case he was deciding, Saville LJ in First National Commercial Bank stated, by reference to Forster and other cases, at p 679D:

“In all those cases, however, the court was able to conclude that the transaction then and there caused the claimant loss, on the basis that if the injured party had been put in the position he would have occupied but for the breach of duty, the transaction in question would have provided greater rights, or imposed lesser liabilities or obligations than was the case; and that the difference between these two states of affairs could be quantified in money terms at the date of the transaction.”

In my judgment, that principle applies in the present case. Given the assumed breach of duty, the appellant suffered damage from the moment the Sony Agreement was made. He was party to an agreement which he claims was, by reason of the negligence of the respondents, less favourable to him than it should have been. A monetary value could have been put upon the loss at that time though the extent of the loss would have depended on subsequent events and an accurate quantification of loss would have been likely to become clearer with the passage of time. The contract into which he entered was of less commercial value than it would otherwise have been, the risk of instant expulsion constituting actual loss.

While the amount of loss may be contingent upon future events, there was an actual loss when the agreement was made. The appellant was only a partner-at-will and one who lost the right to the group’s name if he was expelled from the group. If, upon a consideration of the evidence, negligence was established but it was not established that an agreement more favourable to the appellant could have been achieved, the claim would fail on causation but it does not follow that actual loss does not exist upon the making of the agreement, on the assumption, which it is agreed should be made for present purposes, that a breach of duty and causation can be established. What Mr Arnold described as a “true contingency”, whether the appellant would in the event be expelled from the group, is not an event necessary to establish a loss; loss occurs upon the signing of an agreement which, assuming the negligence alleged, is commercially less favourable than it should have been in that the risk of instant expulsion, with its consequences, was present.

I do not accept the argument that there could be no loss of goodwill in signing the agreement because the goodwill would not have existed if the agreement had not been signed. The agreement with Sony was potentially valuable to those who made it. On the assumed negligence, the agreement which created goodwill in Oasis was less valuable to the appellant than it should have been.

In his draft reply, the appellant sought to rely on sections 14A and 32 of the 1980 Act claiming that it was not until 13 November 1998, when Mr Statham provided his witness statement in the first action, that he learnt how the changes to Clauses 22 and 23 of the draft Sony Agreement had come about. He further claimed that the history of Mr Statham’s conduct of the affairs of Oasis had to be “dragged out of the respondents piecemeal”. Moreover, Mr Statham’s witness statement in the first action was incomplete and inaccurate in saying that it was just before a meeting on 22 October 1993 that he learnt for the first time that the appellant was not going to be a signatory to the Sony Agreement. It was Mr Statham who, two days earlier, had initiated the suggestion that the appellant should not be a party. Only in November 1998 did the appellant know it was Mr Statham who first raised the key member issue without having any instructions to do so. Under section 32, concealment of the basic documents is alleged, together with concealment of the answers to questions posed by the appellant and concealment, until a very late stage, of what Mr Statham did on 20 October 1993. Earlier disclosure of the solicitor’s file would have revealed issues on the drafting of the agreement, as well as the issue on advice.

The judge noted that he could not resolve disputed questions of fact on the application before him and that he “must proceed on the assumption that the appellant’s account of events and his criticisms of Mr Statham are well founded”. The judge assumed that there had been deliberate concealment, though he expressed misgivings as to the manner in which the case of deliberate concealment had been sought to be made in the reply.

Mr Arnold submitted that it was important to bear in mind that the claim was one for professional negligence which must be properly particularised. Until 13 November 1998, or later, the appellant had insufficient knowledge of all the acts and omissions by Mr Statham now complained of.

The judge concluded (paragraph 53) that the question he had to decide under section 14A was “when the [appellant] came into possession of the knowledge of the facts relevant to the current action that his damage was attributable to the act or omission of his then solicitor”. His conclusion was that “the [appellant] possessed that knowledge from shortly after his expulsion from Oasis in April 1995” (that is more than three years before the action was commenced (section 14(4)(b)) of the 1980 Act). The judge added that “ the information contained in Mr Statham’s witness statement may have provided the appellant with additional ammunition for his claim” but the appellant had “been in possession of the requisite knowledge long before then”. As to section 32, the judge concluded that there were no real prospects of the appellant being able to prove that he was, by reason of deliberate concealment on the part of the respondent, kept in ignorance of any fact which was necessary to complete or plead his claim in negligence.

Counsel referred to C v Mirror Group Newspapers [1997] 1 WLR 131, a case under section 32A, which deals with actions in defamation and malicious falsehood. Neill LJ stated, at p 138H, that “the relevant facts are those which the plaintiff has to prove to establish a prima facie case”. Neill LJ approved the statement of claim test, that is “knowledge of the facts which should be pleaded in the statement of claim”.

Mr Sutcliffe QC, for the respondents, also referred to Frisby v Theodore Goddard & Co (Transcript 27 February 1984). That too was a negligence action against solicitors and the limitation argument turned upon a consideration of section 26 of the Limitation Act 1939, the predecessor of section 32 of the 1980 Act. Sir John Donaldson MR stated:

“A right of action arises out of a basic set of essential facts. In the context of the present case these essential facts were (a) a solicitor and client relationship between the plaintiff and the defendants, (b) the giving of advice by the defendants which a skilled and careful solicitor should not have given and, possibly, (c) consequential damage. A right of action may be concealed by hiding one or more of these essential facts from the potential plaintiff. But that did not occur and the plaintiff does not suggest that it did. His complaint is that certain evidence was concealed which, he says, would have supported his right of action. This is something wholly different. Having a right of action and knowing you have it is one thing. Being able to prove it is another. Bridging this gap, when all or an important part of the evidence is or may be in the hands of the defendants, is the function of discovery.”

In my judgment the judge was correct in his conclusions on both section 14A and section 32 of the 1980 Act. While further evidence came to light subsequently, knowledge of the “basic set of essential facts” was present at such time before the action was commenced that the action could be defeated by limitation. The judge’s summary of the facts, and the pleadings served, demonstrate the extent of the information available to the appellant at an early stage.

It was for these reasons that, at the end of the hearing, the Court indicated that it would dismiss the appeal against the judge’s decision that there should be summary judgment for the respondents and judgment to that effect is now given.

I agree.

I also agree.